COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Straightforward to calculate
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Helps with calculation of break even level of output
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Does not include fixed costs
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Does not account for unexpected changes e.g. variable costs altering
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Does not take into account that fixed costs like rent can alter
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Detailed explanation-1: -It helps you in separating your fixed cost from variable cost. Further, it also helps in determining profit generated through selling your products. This means the higher the contribution, the more is the increase in profit or reduction of loss.
Detailed explanation-2: -Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company. It provides one way to show the profit potential of a particular product offered by a company and shows the portion of sales that helps to cover the company’s fixed costs.
Detailed explanation-3: -The advantages of the variable costing Variable costing provides management with data on variable costs and contribution margins needed to make daily decisions on special orders, capacity expansion, and production shutdown.
Detailed explanation-4: -Total profit = contribution less fixed costs In the above example we calculated contribution per unit by subtracting variable cost per unit from selling price per unit. Contribution per unit is a really useful number to have.