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Total revenue formula?
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All Flashcards in Topic 5.5
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5.5.125 cards
Total revenue formula?
TR = Selling price × Quantity sold.
Price × quantity
What are fixed costs?
Costs that stay the same regardless of output — rent, insurance, salaries, loan repayments.
Same regardless of output
Break-even output = the ___ of units at BEP
Number — how many units must be sold to cover all costs.
Number
What is the break-even point?
Where total revenue exactly equals total costs — no profit, no loss.
TR = TC
BEP = where TR = TC (no ___, no ___)
Profit; loss.
Profit + loss
What is the margin of safety?
Actual sales minus break-even sales — the buffer before losses start.
Actual − BEP
What are variable costs?
Costs that change with output — raw materials, packaging, direct labour per unit.
Change with output
FC stay the same. VC change with ___
Output — more units = more variable costs.
Output
Why does break-even matter?
Tells how many units must be sold to avoid a loss; helps planning; useful for business plans; evaluates price/cost changes.
Min sales + planning + evaluation
What is contribution per unit?
Selling price minus variable cost per unit — what each unit contributes toward fixed costs.
Price − VC per unit
Don't confuse contribution with profit! Contribution = ___. Profit = ___
Contribution = price − VC per unit. Profit = TR − ALL costs (FC + VC).
Per unit vs total
TC = FC + VC. Contribution = price − ___
Variable cost per unit.
VC per unit
Below break-even = ___. Above break-even = ___
Below = loss. Above = profit.
Loss vs profit
Total costs formula?
TC = Fixed costs + Variable costs.
FC + VC
Total contribution formula?
Total contribution = Contribution per unit × Number of units sold.
CPU × units
Fixed costs must be paid even if output is ___
Zero — rent and salaries are due whether or not anything is produced.
Zero
At break-even: Total Revenue = ___
Total Costs — exactly covering all costs, zero profit.
Total Costs
Profit only exists ___ break-even
Above — below break-even, the business makes a loss.
Above
Once total contribution covers all fixed costs, you've hit ___
Break-even! After that point, each extra unit sold generates profit.
Break-even
Margin of safety = actual sales − ___
Break-even sales.
BEP sales
Break-even helps new businesses because ___
It shows investors/banks the minimum sales needed — essential for business plans.
Business plan tool
On a graph: FC = horizontal line. VC starts at ___ and slopes ___
Origin (0,0); upwards — more output = more variable costs.
Origin + upwards
Price $10, VC $6. Contribution per unit = ___. FC $2000. BEP = ___
Contribution = $4. BEP = $2000 ÷ $4 = 500 units.
$4; 500 units
Quick: Contribution is the ___ to break-even
Building block — each unit's contribution chips away at fixed costs.
Building block
A loss occurs when ___
Total costs exceed total revenue — the business hasn't sold enough to cover costs.
TC > TR
5.5.225 cards
Break-even chart questions are typically worth ___ marks
4 marks: labelled axes (1), correct TR (1), correct TC (1), BEP identified (1).
4 marks
Step 1 of drawing a break-even chart?
Draw and label axes — x-axis = output (units), y-axis = costs/revenue ($).
Label axes
Break-even chart shows TC and TR at different ___
Output levels — visual way to see BEP, profit/loss zones and margin of safety.
Output levels
What is a break-even chart?
A graph showing TC and TR at different output levels — BEP is where the lines cross.
TC + TR graph
Profit zone on a break-even chart = area where ___
TR is ABOVE TC — to the right of BEP.
TR above TC
If question says 'to scale' but you don't draw to scale, max = ___
Usually 2 out of 4 — scale matters for accuracy marks.
2 out of 4
TC line starts at ___ and slopes ___
Fixed costs level (not zero); upward — because VC adds to FC as output increases.
FC level + upward
Why draw a break-even chart?
Visual way to see profit/loss zones, margin of safety, and impact of cost/price changes.
Visual planning tool
TC starts at ___; TR starts at ___
TC at fixed costs level; TR at the origin.
FC level; origin
Loss zone on a break-even chart = area where ___
TC is ABOVE TR — to the left of BEP.
TC above TR
To find profit at any output from the chart:
Read TR and TC at that point, then profit = TR − TC.
TR minus TC at that point
Use a ___ for neat, accurate lines
Ruler — makes it easier for the examiner to award marks.
Ruler
On a break-even chart, x-axis = ___; y-axis = ___
X = output (units); Y = costs/revenue ($).
Units; $
TR line starts at ___ and slopes ___
Origin (0,0); upward — zero sales = zero revenue.
Origin + upward
Always label axes, lines and ___
BEP — four marks typically available for a well-drawn chart.
BEP
Common chart mistakes that lose marks?
Forgetting to label axes, not starting TC at FC level, not drawing to scale.
Labels + TC start + scale
Break-even output: read ___ from BEP to the ___
Down; x-axis — gives the number of units.
Down to x-axis
BEP on the chart is where ___
TC and TR lines cross — read down to x-axis for break-even output.
Lines cross
Draw to scale if asked — otherwise max ___
2 marks out of 4.
2/4
Four things to always label on a break-even chart?
Axes, TR line, TC line, BEP.
Axes + TR + TC + BEP
Quick: BEP = where ___ and ___ lines cross
TC and TR.
TC + TR
Break-even chart shows margin of safety as ___
Distance along x-axis between BEP and actual output.
Gap on x-axis
After drawing TC and TR, mark the ___ where they cross
Break-even point — and label it clearly.
BEP
Margin of safety on chart = distance between ___ and ___
BEP and actual output on the x-axis.
BEP to actual
Quick: Profit zone = right of BEP. Loss zone = ___
Left of BEP.
Left
5.5.325 cards
Target profit output formula?
Output = (Fixed costs + Target profit) ÷ Contribution per unit.
(FC + target) ÷ CPU
Margin of safety formula?
MoS = Actual (or estimated) sales − Break-even output.
Actual − BEP
Profit formula (two versions)?
Profit = TR − TC. OR: Profit = Total contribution − Fixed costs.
TR−TC or TotContrib−FC
Break-even output formula?
BEP = Fixed costs ÷ Contribution per unit.
FC ÷ CPU
BEP = FC ÷ ___
Contribution per unit (price − VC per unit).
CPU
FC $20k, price $50, VC $30. BEP?
CPU = $50−$30 = $20. BEP = $20,000 ÷ $20 = 1,000 units.
1,000 units
BEP 1000, actual sales 1500. MoS = ___
1500 − 1000 = 500 units — sales could drop by 500 before losses start.
500 units
FC $20k, target profit $10k, CPU $20. Output needed?
($20k + $10k) ÷ $20 = 1,500 units.
1,500 units
MoS = actual sales − ___
Break-even output.
BEP
1500 units × $50, VC $30, FC $20k. Profit?
TR=$75k. TVC=$45k. TC=$65k. Profit=$75k−$65k = $10,000.
$10,000
Target price questions require you to ___
Work backwards: total costs + target profit = required revenue. Then price = revenue ÷ units.
Work backwards
Profit = TR − TC, or Total contribution − ___
Fixed costs.
FC
Always show your working because ___
Even if the final number is wrong, you can earn method marks.
Method marks
A small margin of safety is ___ because ___
Risky — a small drop in sales could push the business into a loss.
Risky + vulnerable
Shortcut profit method?
CPU ($20) × units (1500) = $30k contribution − FC ($20k) = $10k profit. Same answer!
Contribution shortcut
A large margin of safety means ___
Comfortable buffer — the business can absorb a significant sales drop and still profit.
Comfortable buffer
Loss occurs when ___
Total costs exceed total revenue — business sold below break-even.
TC > TR
Required price = (TC + target profit) ÷ ___
Number of units expected to be sold.
Units
Target output = (FC + target profit) ÷ ___
Contribution per unit.
CPU
Contribution per unit formula?
CPU = Selling price − Variable cost per unit.
Price − VC
Target questions test your ability to ___
Read carefully, identify what you know and need to find, then work step by step.
Step by step
MoS tells you how far sales can ___ before ___
Drop; the business starts making a loss.
Drop; loss
Quick: ALWAYS show working for ___ marks
Method marks — partial credit even if final answer is wrong.
Method
Negative profit means ___
A loss — the business needs to sell more, cut costs or raise prices.
Loss
BEP tells you the ___ number of units to sell to cover ___
Minimum; all costs (both fixed and variable).
Minimum; all costs
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Price increase → TR line becomes ___. BEP ___
Steeper (more revenue per unit). BEP decreases. But may lose customers!
Steeper + BEP down
FC up → TC shifts UP → BEP ___
Increases.
Increases
Name three limitations of break-even analysis
Assumes all output sold, assumes costs purely fixed/variable, assumes constant price, single product only, static model.
All sold + pure costs + one price + one product
FC increase → TC line shifts ___. BEP ___
UP (parallel). BEP increases — need to sell more.
Up + BEP increases
Why is 'assumes all output is sold' a limitation?
In reality, not everything sells — unsold stock means actual revenue is lower than predicted.
Unsold stock
VC up → TC STEEPER → BEP ___
Increases.
Increases
Price decrease → TR line becomes ___. BEP ___
Flatter (less revenue per unit). BEP increases. But may attract more customers!
Flatter + BEP up
VC increase → TC line becomes ___. BEP ___
Steeper (starts same, rises faster). BEP increases — contribution falls.
Steeper + BEP increases
Why is 'single product only' a limitation?
Most businesses sell multiple products at different prices — break-even can't handle this complexity.
Multiple products
FC change = TC shifts up/down (parallel). VC change = TC changes ___
Gradient (steepness) — different effects on the chart.
Gradient
Price up → TR STEEPER → BEP ___
Decreases.
Decreases
Price up → BEP down. Price down → BEP ___
Up — lower contribution per unit means more units needed to break even.
Up
Mentioning limitations in exams shows ___
Critical thinking — can push answers into the top mark band.
Critical thinking
Rent goes up → which line moves? How?
TC shifts upward (parallel) — FC increased so whole line moves up.
TC shifts up
When discussing price changes, always consider ___
Both the numbers (BEP change) AND the impact on demand (customers' response).
Numbers + demand
Price down → TR FLATTER → BEP ___
Increases.
Increases
Price up → TR steeper → BEP lower. Price down → TR ___ → BEP ___
Flatter; higher.
Flatter + higher
Quick: Break-even limitations include assumes all sold, single product, constant ___
Prices — in reality businesses use discounts and change prices.
Prices
Break-even is a ___ model — doesn't account for ___
Static; changes over time.
Static + no time changes
Raw materials cost more → which line changes? How?
TC becomes steeper — VC per unit increased so gradient increases.
TC steeper
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Target profit output = (FC + target profit) ÷ ___
Contribution per unit.
CPU
Target profit output formula?
(Fixed costs + Target profit) ÷ Contribution per unit.
(FC + TP) ÷ CPU
Show all ___ in target profit/price exam calculations
Working — method marks available even if final answer is wrong.
Working
Target price formula?
(FC ÷ forecasted output) + VC per unit + (Target profit ÷ forecasted output).
FC/output + VC + TP/output
FC=$50k, VC=$10, price=$30, target profit=$20k. Target output?
CPU = $20. Target output = ($50k + $20k) ÷ $20 = 3,500 units.
3,500 units
FC=$50k, output=5000, VC=$10, target profit=$20k. Target price?
($50k ÷ 5000) + $10 + ($20k ÷ 5000) = $10 + $10 + $4 = $24/unit.
$24/unit
Target profit/price extends break-even by asking ___
How many units OR what price needed to achieve a SPECIFIC profit goal — beyond just covering costs.
Specific profit goal
Topic 5.5 study notes
Full notes & explanations for Break-even analysis
BM exam skills
Paper structures, command terms & tips
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