Break-even is a situation where an organization is neither making money nor losing money, but all the costs have been covered. Break-even analysis refers to the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs. In layman’s terms, this analysis shows how many sales it takes to pay for the cost of doing business. The two major components of break even analysis include fixed costs and variable costs. The basic formula for break-even analysis is derived by dividing the total fixed costs of production by the contribution per unit. Analyzing different price levels relating to various levels of demand, the break-even analysis determines what level of sales are necessary to cover the company's total fixed costs. The break-even point can be considered as a measure of the margin of safety. Break-even analysis is used extensively, from stock and options trading to corporate budgeting for various projects. Break even analysis is used when starting a new business, creating a new product or changing the business model. It helps to determine remaining/unused capacity of the company once the breakeven is reached. This will help to show the maximum profit on a particular product/service that can be generated. It also helps to determine the changes in profits if the price of a product is altered. This analysis enables us to determine the amount of losses that could be sustained if there is a sales downturn. Please see the slides for detailed description.

Sreekala P

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