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break even analysis - Coggle Diagram
break even analysis
key terms
variable costs
vary with the level of output, for example raw materials
semi-variable
part of the cost stays the same and part varies in relation to the degree of business activity, for example a worker may be paid a fixed rate of pay but at busy times earn additional payments for working overtime.
fixed costs
do not vary with output, for example rent
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contributions per unit
benefits
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can be used to inform decisions, e.g what price to charge
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limitations
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does not take into account any unexpected changes to variables, e.g selling price and variable costs can fluctuate
break even
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disadvantages
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forecast sales may not be achieved and hence, veen through the break-even point is known, it may not be achieved
targets set may be too high, creating stress