From Wikipedia, the free encyclopedia
The Break-Even Point is where Total Costs equal Sales. In the Cost-Volume-Profit Analysis model, Total Costs are linear in volume.
In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has “broken even”. A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.
For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month.
If they think they cannot sell that much, to ensure viability they could:
- Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs)
- Try to reduce variable costs (the price it pays for the tables by finding a new supplier)
- Increase the selling price of their tables.
Any of these would reduce the break even point. In other words, the business would not need to make so many tables to make sure it could pay its fixed costs.