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Break-even (economics)
From Wikipedia, the free encyclopedia
This article is about Break-even (economics). For other uses, see Break-even (disambiguation).
The Break-Even Point is where Total Costs equal Sales. In the Cost-Volume-Profit Analysis 
model, Total Costs are linear in volume.
In economics & business, specifically cost accounting, the break-even point (BEP) is the point at 
which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken 
even". A profit or a loss has not been made, although opportunity costs have been paid, and capital 
has received the risk-adjusted, expected return.
[1]
For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more,
it will be a profit. With this information, the business managers will then need to see if they expect 
to be able to make and sell 200 tables per month.
If they think they cannot sell that much, to ensure viability they could:
1. Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of
telephone bills or other costs)
2. Try to reduce variable costs (the price it pays for the tables by finding a new supplier)
3. Increase the selling price of their tables.
Any of these would reduce the break even point. In other words, the business would not need to 
make so many tables to make sure it could pay its fixed costs.
[edit] Computation
In the linear Cost-Volume-Profit Analysis model,
[2]
 the break-even point (in terms of Unit Sales 
(X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:

where:
 TFC is Total Fixed Costs,
 P is Unit Sale Price, and
 V is Unit Variable Cost.
The Break-Even Point can alternatively be computed as the point where Contribution equals Fixed 
Costs.
The quantity  is of interest in its own right, and is called the Unit Contribution Margin 
(C): it is the marginal profit per unit, or alternatively the portion of each sale that contributes to 
Fixed Costs. Thus the break-even point can be more simply computed as the point where Total 
Contribution = Total Fixed Cost:
In currency units (sales proceeds) to reach break-even, one can use the above calculation and 
multiply by Price, or equivalently use the Contribution Margin Ratio (Unit Contribution Margin 
over Price) to compute it as: 
R=C Where R is revenue generated C is cost incurred i.e. Fixed costs + Variable Costs or Q X 
P(Price per unit)=FCT + Q X VC(Price per unit) Q X P - Q X VC=FC Q (P-VC)=FC or Break 
Even Analysis Q=FC/P-VC=Break Even ®®
[edit] Margin of Safety
Margin of safety represents the strength of the business. It enables a business to know what is the 
exact amount he/ she has gained or lost and whether they are over or below the break even point.
[3]
margin of safety = (current output - breakeven output)
margin of safety% = (current output - breakeven output)/current output x 100
If P/V ratio is given then profit/ PV ratio

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Break-even (economics) From Wikipedia, the free encyclopedia This article is about Break-even (economics). For other uses, see Break-even (disambiguation). The Break-Even Point is where Total Costs equal Sales. In the Cost-Volume-Profit Analysis model, Total Costs are linear in volume. In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.[1] For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month. If they think they cannot sell that much, to ensure viability they could: 1. Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs) 2. Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3. Increase the selling price of their tables. Any of these would reduce the break even point. In other words, the business would not need to make so many tables to make sure it could pay its fixed costs. [edit] Computation In the linear Cost-Volume-Profit Analysis model,[2] the break-even point (in terms of ...
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