BREAK EVEN POINT
1. Selling Price per Unit:The amount of money charged to the customer for each unit of a product or service. 2. Total Fixed Costs: The sum of all costs required to produce the first unit of a product. This amount does not vary as production increases or decreases, until new capital expenditures are needed. Fixed Costs: Fixed costs are those business costs that are not directly related to the level of production or output. In other words, even if the business has a zero output or high output, the level of fixed costs will remain broadly the same. In the long term fixed costs can alter - perhaps as a result of investment in production capacity (e.g. adding a new factory unit) or through the growth in overheads required to support a larger, more complex business. Examples of fixed costs:
- Rent and rates
- Research and development
- Marketing costs (non- revenue related)
- Administration costs
3. Variable Unit Cost: Costs that vary directly with the production of one additional unit. Total Variable Cost The product of expected unit sales and variable unit cost, i.e., expected unit sales times the variable unit cost. Variable Costs: Variable costs are those costs which vary directly with the level of output. They represent payment output-related inputs such as raw materials, direct labour, fuel and revenue-related costs such as commission. A distinction is often made between "Direct" variable costs and "Indirect" variable costs. Direct variable costs are those which can be directly attributable to the production of a particular product or service and allocated to a particular cost centre. Raw materials and the wages those working on the production line are good examples. Indirect variable costs cannot be directly attributable to production but they do vary with output. These include depreciation (where it is calculated related to output - e.g....
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