The break-even point (BEP) is the point at which total revenue equals total cost. Before break-even, the company is losing money. After break-even, profit is being realized. Therefore, it is critical to project the volume of sales needed to reach break-even and the point in time when this volume will be achieved.
As shown in Figure A.1, calculation of the BEP in units (#) is based on the simple formula: BEP# = FC/P-VC,
Figure A.1 Graphic depiction of break-even analysis
where,
FC |
= |
the fixed costs of the operation |
P |
= |
the unit price of the product to be sold |
VC |
= |
the variable cost (cost associated with ... |
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