The-Importance-Of-Break-Even

课 Progress

0% Complete

Exam code:J204

The concept of break-even

Break-even analysis is a financial tool used to determine the number of units a business must sell to reach a point where its revenue equals its expenses (neither profit nor loss)
- It helps businesses understand the minimum level of sales or output they need to achieve in order to cover all costs
- This helps business managers make informed decisions about pricing and production volumes

Three hexagonal puzzle pieces labelled "Fixed Costs," "Variable Costs," and "Revenue," interlock, representing financial concepts. — **Variable costs, fixed costs and sales revenue are all used in calculating the break-even point**

Fixed costs are costs that do not change regardless of the level of production or sales
- They remain the same at every level of output
  - E.g. Rent, salaries and insurance
Variable costs are costs that vary with the level of production or sales
- They increase in direct proportion with the level of output
- E.g. Raw materials, direct labour costs, packaging and shipping costs
Total costs are the sum of fixed costs and total variable costs at a particular level of output, calculated using the formula

$Total space costs space equals space Fixed space costs space plus space Total space variable space costs$

Revenue is the money gained from selling products, calculated using the formula

$Sales space revenue space equals space Selling space price space cross times space Number space of space items space sold$

Calculating break-even

The break-even point is expressed as a number of units and is calculated using the formula:

$space Break minus even space point space equals space fraction numerator Total space fixed space costs over denominator Selling space price space minus space Variable space cost space per space unit end fraction$

<div

Business GCES OCR

The-Importance-Of-Break-Even

The concept of break-even

Calculating break-even

Responses