Read on to discover the break-even formula, what you should pay attention to in a break-even analysis, and why sometimes production can be of interest even if you haven't crossed the break-even threshold.
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The break-even point (BEP ) refers to the point at which costs overseas chinese in canada data are covered. As a key performance indicator ( KPI ), it represents the point at which a company's total revenue (including sales revenue) and expenses are offset. At the break-even point, total revenue and total costs are equal; that is, no profit has been made yet, but there are no losses either.
For entrepreneurs or new product providers, the break-even point is an important metric to determine when a new business activity starts to become profitable. So, if the break-even point is exceeded, you start to generate profits. On the other hand, if the break-even point is not reached or is reached too late, the project may not be viable. For this reason, it is important to understand net profit and gross profit , as well as the profitability objectives set.
The break-even point : graphical representation
At the break-even point, revenue and costs are equal and can be seen graphically as follows: Total costs, including fixed and variable costs, can be represented as a red straight line. Profit is also represented by a line, in this case green. The point where both lines intersect is the break-even point.
The point of equilibrium
The break-even point indicates the level of sales at which your revenues equal your invested costs. Over the period considered, the profit is zero, meaning there is no profit or loss.
Costs are divided into fixed and variable costs.
Fixed costs are those incurred in order to launch the general offer of the product or service.
Variable costs depend on the number of units produced, that is, how many units of your product you have generated.
To break even, sales price must exceed variable costs. So each unit sold adds up, minus variable costs, to cover fixed costs. This excess is the contribution margin, and the proportion of costs it represents is the contribution margin ratio.
