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Definition

Break-even analysis

Break-even Analysis is the pricing-related technique used to determine the minimum sales volume a product must generate at a certain price level so that all prior costs are covered.

Break-even analysis is a determination of how many product units must be sold at various prices for a firm to recover costs and begin making a profit.

Break-even analysis refers to an analysis that determines the unit volume and dollar sales needed to be profitable given a particular price and cost structure. 

At the Break-even Point, total revenue equals total costs and profit is zero. Above this point, the company will make a profit; below it, the company will lose money.

A company can calculate break-even volume using the following formula:

 

Break-even Volume =  Fixed Costs / (Price – Unit Variable Cost)

 

Break-even analysis is a method of determining the number of units that must be sold at a given price to recover costs and make a profit.

Types of Break-even

There are two major types of break-evens and they are -

  1. The Cash Break-even
  2. The Income Break-even

 

Use of the Term in Sentences

  • Break-even Analysis is one of the most straightforward ways to measure the progress and estimate the promise of any business.
  • To measure the profit generation break-even analysis is the most important step.

 

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