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chap 19 - Coggle Diagram
chap 19
Uses
Decide whether to stop or continue
Deciding on the best location
Setting the price
Break-even charts
Uses
Display break-even output
Show margin of safety
Help in decision making
Show area of profit or loss
Limitations
No inventories
'Straight line' assumption
Fixed costs not always constant
Concentrate on break-even
The contribution of a products
Selling price - Variable cost
Break-even level of production
Total fixed costs/contribution per unit
Fixed cost
Costs that do not vary with the number of items sold or produced. They must be paid.
Total cost
Sum of fixed cost and variable cost
Economy of scales
Are the factors which lead to the reduction in average cost when the business increases in size
Purchasing Economies
Marketing economies
Financial Economies
Managerial Economies
Technical economies
Diseconomies of scale
Are factors that leads to an increase in average cost when the business increases in size
Weak coordination
Lack of commitment from employees
Poor communication
Break-even level of output
Quantity that must be sold or produced for total revenue to be equal to total cost
Margin of safety: The amount by which sales exceed the break-even point
Break-even point: Is the level of sales at which total costs = total revenue
Variable costs are cost which vary directly with items sold or produced
Average cost: Total cost divided by total output
Break-even charts are graphs which show how costs and revenues change with sales.
The revenue of a business is the total income of a business from the sales of goods or services
Break even point is level of sales which total costs= total revenue