Break –Even Point: The volume at which total revenues equal total costs. Break-Even Analysis: To evaluate an idea for a new service or product, or to assess the performance of an existing one, determining the volume of sales at which the service at which the service o product breaks even is useful. Use of this technique is known as break-even analysis. The Break-Even analysis can be used to compare processes by finding the volume at which two different processes have equal total costs
The Break-Even Point'
In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been "paid", and capital has received the risk-adjusted, expected return. For example, if a business sells fewer than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month. If they think they cannot sell that many, to ensure viability they could: 1. Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs) 2. Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3. Increase the selling price of their tables.
Any of these would reduce the break even point. In other words, the business would not need to sell so many tables to make sure it could pay its fixed costs. -------------------------------------------------
In the linear Cost-Volume-Profit Analysis model, the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:
* TFC is Total Fixed Costs,
* P is Unit Sale Price, and