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Definition

Break-even analysis

Break-even analysis refers to analysis to determine 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.

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