Question

What is Break-even Point?

Hint:

Break-even analysis helps managers make decisions on pricing, production, and profit planning.

Answer 1

Step 1: Definition.
The break-even point is the level of production or sales at which total revenue equals total cost. At this point, a business makes neither profit nor loss.
Step 2: Explanation.
It helps determine the minimum output required to avoid losses. Any sales above this point result in profit, while sales below it result in loss.
Step 3: Formula.
\[ \text{Break-even Point (Units)} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}} \] Step 4: Conclusion.
Thus, the break-even point is the stage where total cost equals total revenue, resulting in no profit and no loss.