The break-even point is the level of sales at which total revenue exactly covers total costs, so the business makes neither a profit nor a loss.
The break-even point is where revenue equals the sum of fixed and variable costs. Below it the business loses money; above it, it profits. In units, it equals fixed costs divided by the contribution margin per unit (price minus variable cost per unit).
Break-even analysis answers essential questions: how much must we sell to cover our costs, how does a price change move that target, and can we afford a new fixed cost like a lease or a hire. It is one of the most practical tools for pricing and planning decisions.
A business has $40,000 of fixed costs and a $20 contribution margin per unit. Its break-even is $40,000 ÷ $20 = 2,000 units. Every unit beyond 2,000 contributes $20 straight to profit.
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