5.5 Break-even analysis

• Distinguish total contribution and contribution per unit

• Contribution supports break-even, pricing, and output decisions

• Construct and interpret break-even quantity or point, profit or loss, margin of safety, target profit output, target profit, and target price

• Break-even analysis uses fixed costs, variable costs, total costs, revenue, and contribution

• Analyse effects of price or cost changes on break-even quantity, profit, and margin of safety

• Use both graphical and quantitative methods

• Evaluate limitations of break-even as a decision-making tool

• Limitations include assumptions about linear costs/revenue, fixed prices, single products, and certainty