What is Break Even point? Break even point is the point at which income and expenses of are totally equal. So the business has not made any profit or any loss at this point. But when it comes to the total value of expenses is higher than total profit, the organization will suffer losses. Losses will result the opposite effect of profits. An organization that suffer losses may be forced to decrease their operational output. The reduction may consist of reducing their employees, shutting down their underachieving business service and selling some of their assets. An organization have to take extra actions depending on the steadiness of business losses and they must know whether their initial reduction systems is fully working to make their business rise again. Constant business losses will result the organization to bankrupt. Most business will find way to avoid bankruptcy by selling the business to other companies or getting extra financing to continue their services. Bankruptcy will be their last choices. This bankruptcy may also affect the financial flow of other organization in the business environment. (Osmond Vitez. (2009). What Are the Effects of Profit or Loss in a Business Organization?) Example:
UnFreshCo Company have monthly income of $1000, but their expenses is greater than their income value which is $1500 per month. So in conclusion, this company will suffer $-500 losses and will unable to reach the break-even point.
The business that exceeds the break-even point are the main reason for an organization to earn profit. A beneficial effect of an organization earning profit usually will give the companies opportunity to develop and grow their business further. It also allow an organization to improves the livelihood of their owners, directors and employees. This will cover an increase in their salary levels, giving extra bonuses and additional holiday time. So this will affect the employees to get a good performance and giving a good impact to...
Please join StudyMode to read the full document