Glossary of Terms
Break-even point (BEP)—the sales quantity where the firm's total cost will just
equal its total revenue.
Break-even point formulae—(S = FC + VC)(FC + VC = Fixed Costs + Variable
Costs)
Break-even analysis—an approach to determine whether the firm will be able to
break-even that is, covers all its costs with a particular price.
It is a method to determine the point at which business will neither make a
profit nor incur a loss. That point is expressed either in the total dollars of
revenue exactly offset by the total of the fixed and variable expenses or, in total
units of production, the cost of which exactly equals the income derived by their
sale.
Cost of goods sold (CGS)—appears on the operating statement, which is
sometimes called either the Net Income Statement or the Profit and Loss
Statement. Adding inventory purchases during the accounting period to the
beginning inventory and then subtracting the ending inventory for the period
arrive at the CGS.
Fixed costs—fixed costs are those costs not associated with, or the result of, the
acquisition and sale of business offerings.
Examples: mortgage payments, rent, light, heat, and taxes
Gross margin (GM)—the money left to cover the expenses of selling the offerings
and operating the business. Same as Gross Profit Margin defined below.
Gross profit margin—the difference between revenue and the cost of goods or
services sold.
Liability—is money owed by individuals or companies.
Offerings—the products and services that a business provides its clients/customers
Profit—a business' earnings after paying all expenses.
The excess of the selling price over all costs and expenses incurred making the
sale. In addition, the reward to the entrepreneur for the risks assumed in the
establishment, operation, and management of the business enterprise