Break-even analysis entails calculating and examining the margin of safety for an entity, based on the revenues collected and associated costs. In other words, the analysis shows how many sales it takes to pay for the cost of doing business. Put simply, break-even analysis helps you to determine at what point your business – or a new product or service – will become profitable, while it’s also used by investors to determine the point at which they will recoup their investment and start making money. Break-Even Point (B.E.P.) indicates a level of output where the total costs (fixed costs plus variable costs) are just equal to break-even with sales amount and thus it is a point of no profit and no loss. We may term it as a point beyond which there are no losses but only profits. Break-even analysis is valuable as a preliminary decision-making tool. The principle idea behind break-even analysis is that all costs are variable (which means they vary with output), fixed (which means they are relatively constant over time) or a combination of both.

Jincy Anna Joy

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