Break Even Analysis
Introduction:
Break-even analysis is a technique widely used by production management and management accountants. It is based on categorizing production costs between those which are "variable" (costs that change when the production output changes) and those that are "fixed" (costs not directly related to the volume of production).
Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point").
Some Related Definitions:
Break Even Analysis:
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Break Even Point:
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Break Even Price:
The amount of money for which a product or service must be sold to cover the costs of manufacturing or providing it.
Fixed Cost:
A cost that remains constant, regardless of any change in a company 's activity.
Variable Cost:
A cost that changes in proportion to a change in a company 's activity or business.
Contribution Margin:
A cost accounting concept that allows a company to determine the profitability of individual products.
It is calculated as follows:
Product Revenue - Product Variable Costs Product Revenue
The phrase "contribution margin" can
Break-even analysis is a technique widely used by production management and management accountants. It is based on categorizing production costs between those which are "variable" (costs that change when the production output changes) and those that are "fixed" (costs not directly related to the volume of production).
Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point").
Some Related Definitions:
Break Even Analysis:
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Break Even Point:
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Break Even Price:
The amount of money for which a product or service must be sold to cover the costs of manufacturing or providing it.
Fixed Cost:
A cost that remains constant, regardless of any change in a company 's activity.
Variable Cost:
A cost that changes in proportion to a change in a company 's activity or business.
Contribution Margin:
A cost accounting concept that allows a company to determine the profitability of individual products.
It is calculated as follows:
Product Revenue - Product Variable Costs Product Revenue
The phrase "contribution margin" can