What is break-even Analysis:
Break-Even Analysis is used to check what number of units should be sold to fulfill all expenses of a business. We have used the Fixed and Variable (per unit) costs to do this analysis.
What is the break-even point?
The break-even point of a business is where the overall cost (Fixed + Variable) is the same as the Revenue. The lower the break-even point, the upper the financial stability and solvency of the firm.
Break-even analysis is critical in business planning and company finance because assumptions about costs and potential sales determine if a corporation (or project) is on target for profitability.
Break-Even Analysis Calculation:
To calculate the Break-Even Point, we need below things-
- Price Per Unit: the worth at which you’re going to sell the merchandise
- Fixed Cost: Rent, advertisement, salary, etc.
- Variable Cost (per unit): Cost of products sold, packing, etc.
- Contribution Margin (per Unit): Price per unit – Variable Cost (per unit)
Break-Even Point = fixed charge / Contribution Margin (per unit) Break-Even Sale = Break-Even Point * Price Per Unit