Wednesday, 14 December 2016

What is Break-Even Analysis?

Every business involved in the manufacturing or production of goods should be aware of the break even analysis. With the help of the break even analysis formula, you are able to calculate your break-even point. It is the point at which the total expense equals the total revenue. So, there is no net profit earned or any loss incurred by the business at the break-even point. Let’s take a look at the break even analysis in more detail.

Break Even Analysis

The break even analysis can be presented in form of the number of units or the amount of revenue earned. For any company, there are two types of costs-fixed cost and variable cost. The fixed cost remains fixed for a considerable period of time. As and when the level of production reaches beyond the optimal limit, the fixed would increase. This cost is incurred by the firm even when they are no units produced. Examples include salary to the supervisor, rent, power bills. The firm is liable to pay for these costs irrespective of the level of units produced or not.

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