Break Even Definition
The break-even point (BEP) is the point at which total revenue and total costs are equal. This is the point at which a company’s business operations can sustain themselves without incurring a loss. The BEP can be calculated in terms of units sold, dollars, or both. Once the break-even point is reached, any additional revenue will result in profit. To calculate the break-even point in terms of units, one must first find the total fixed costs of production and then divide that by the unit price minus the variable cost per unit. This will give you the number of units needed to be sold in order to reach the break-even point. The break-even analysis is a tool used by management to determine what level of sales volume or revenue is necessary to cover all of a company’s expenses. It helps management decide whether it is worth it to continue investing resources into a project or business venture. The analysis can also be used as a forecasting tool to predict how changes in variable costs, fixed costs, or prices will impact a company’s bottom line.
