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Break-Even Analysis and Safety Margin

The break-even point is where total revenues equal total costs and zero profits are earned. At the break-even point, all fixed costs are covered, and above it only variable costs are covered. Margin of safety is the sales activity in excess of what is needed to break even, with a higher margin of safety comes lower risk. Sensitivity analysis examines the impact of changes in assumptions and allows a company to input data to calculate break-even points and see how impacts change profits.

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15 views1 page

Break-Even Analysis and Safety Margin

The break-even point is where total revenues equal total costs and zero profits are earned. At the break-even point, all fixed costs are covered, and above it only variable costs are covered. Margin of safety is the sales activity in excess of what is needed to break even, with a higher margin of safety comes lower risk. Sensitivity analysis examines the impact of changes in assumptions and allows a company to input data to calculate break-even points and see how impacts change profits.

Uploaded by

Anonymous Hy9wk9
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Colin Mason

Questions 4

3. The break-even point is the point of sales activity where total revenues equal total costs, or
where zero profits are earned.
4. When you are at the break-even point, all fixed costs are covered but above the break-even
point, only variable costs are covered. Contribution margin per unit is profit per unit, as long
as the unit-selling price is greater than the unit variable cost.
12.

Margin of Safety is the sales activity in excess of what is needed to break even. With a higher
margin of safety comes a lower risk to take.

14. Sensitivity analysis is a technique used that examines the impact of changes in underlying
assumptions on an answer. A company can input data on selling prices, variable costs, fixed
costs, and sales mix and set up formulas to calculate break-even points. By doing this the
data can be controlled as desired to see how impacts change the profit.

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