Business – 5.4 Costs – Break-even analysis | e-Consult
5.4 Costs – Break-even analysis (1 questions)
Login to see all questions.
Click on a question to view the answer
Break‑even analysis is a financial tool that determines the level of sales at which total revenue equals total costs, resulting in zero profit. The key components are:
- Fixed costs (costs that do not vary with output)
- Variable costs per unit (costs that vary directly with output)
- Selling price per unit
The basic formula for the break‑even point in units is:
Break‑even units = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)
When this quantity is sold, total revenue exactly covers total fixed and variable costs.