Breakeven Analysis

Topics: Variable cost, Cost, Costs Pages: 4 (935 words) Published: March 22, 2013

Break-even is the point at which a product or service stops costing money to produce and sell, and starts generating a profit for your business. This means sales have reached sufficient volume to cover the variable and fixed costs of producing and distributing your product. [Type the document subtitle]




Break Even is:
•the sales point at which the Company neither makes profit nor suffers loss, or  •sales level where fixed cost are fully absorbed by or  •the level where contribution margin equals the fixed cost.

Breakeven analysis provides data for 
• profit planning
• policy formulating and
•decision making

Break-even analysis may be based on:
•historical data,
•past operations, or
•future sales and costs,

Depending on management’s need and desire.

•The break even analyses technique is used in various business decision making areas, as this help in knowing the minimum desired level to be achieved to avoid loss situation. •The Breakeven analysis is mostly used at the time of investing in new project and introducing new products. •The organizer of this workshop must have seen Break even for this workshop.

 Hospital or Hotel management would like to know sales point in terms of number of beds/ rooms, to recover fixed cost to reach at a breakeven point.

The school owner would be interested in knowing minimum number of students to be admitted to reach at breakeven

New branch of bank would need to know minimum deposits from customer   
On introduction of new products certain huge sales promotional expenses are planned in order to achieve planned sales.

The management while deciding about approving expenditures would be interested to see cost / benefit analyses or minimum expected sales (break even) to be achieved to recover these expenses (disregarding the very ambitious sales budgets submitted by the sales and marketing...
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