A small business made textsterling20, 000 sales revenue this month. This is expected to increase by 10% next month. Its total costs are estimated to equal 25% of its revenue. The businesss profit for next month is forecast to be:

BREAK EVEN POINT

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A small business made £20, 000 sales revenue this month. This is expected to increase by 10% next month. Its total costs are estimated to equal 25% of its revenue. The business’s profit for next month is forecast to be:

A	£5, 500
B	£15, 000
C	£16, 500
D	£22, 000

Explanation:

Detailed explanation-1: -Variable Cost Formula. To calculate variable costs, multiply what it costs to make one unit of your product by the total number of products you’ve created. This formula looks like this: Total Variable Costs = Cost Per Unit x Total Number of Units.

Detailed explanation-2: -A variable cost is an expense that changes in proportion to production output or sales. When production or sales increase, variable costs increase; when production or sales decrease, variable costs decrease.

Detailed explanation-3: -Therefore, the concept of break even point is as follows: Profit when Revenue > Total Variable Cost + Total Fixed Cost. Break-even point when Revenue = Total Variable Cost + Total Fixed Cost.

Detailed explanation-4: -Your break-even point is equal to your fixed costs, divided by your average selling price, minus variable costs. It is the point at which revenue is equal to costs and anything beyond that makes the business profitable.

There is 1 question to complete.

ECONOMICS

COST ACCOUNTING

BREAK EVEN POINT