Break-even point
Break-even point is a term used in business to describe the point at which total revenue equals total costs, resulting in neither profit nor loss. It is an important concept for businesses to determine the level of sales needed to cover all costs.
To calculate the break-even point, the following formula is used:
Break-even point = Fixed costs / (Selling price per unit – Variable costs per unit)
For example, if a company has fixed costs of $10,000, sells a product for $50 with variable costs of $30 per unit, the break-even point would be:
$10,000 / ($50 – $30) = 500 units
This means the company would need to sell 500 units of the product to cover all costs and reach the break-even point.
Understanding the break-even point is crucial for businesses as it helps in setting pricing strategies, forecasting profits, and making informed decisions about production levels.
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