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 -
- The Cash Break-even
- 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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