Break-Even Analysis Made Simple

Break-even analysis determines when revenues equal costs:

Break-Even Point Formula: Break-Even Point = Fixed Costs / (Price per Unit - Variable Cost per Unit)

Key Terms: - Fixed Costs: Expenses that don't change with production volume (rent, salaries) - Variable Costs: Expenses that change with production (materials, labor) - Contribution Margin: Price minus variable cost per unit

Example: - Fixed costs: $50,000 - Price per unit: $100 - Variable cost per unit: $60 - Break-even: $50,000 / ($100 - $60) = 1,250 units

Use break-even analysis for various business decisions:

Product Launch: - Determine minimum sales needed - Set realistic pricing strategies - Evaluate market viability - Plan production capacity

Investment Decisions: - Calculate payback periods - Assess project feasibility - Compare investment options - Set performance targets

Pricing Strategy: - Find optimal price points - Understand cost structures - Evaluate discount impacts - Plan promotional campaigns