Management Accounting 2

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Break

Break even: is the point at which total sales equal total costs and neither a profit nor a loss is being made.

TR = TC

TR = TC

TR

TR = TC

Tr

TR = TC

TR = Sales volume x price

TC = Fixed costs + Variable costs

B (number of units

B (number of units needed to be sold to break even = Fixed costs/ (Sales rev per unit-Variable costs per unit)

3 weaknesses of Break-even Analysis:

1. Non-linear relationships

2. stepped fixed costs

3. Multi-product businesses

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