Break-even point

In economics, cost accounting and business break-even point refers to point at which you get not losses nor gains, your expenses are even to your revenue. A profit or loss hasn’t been made, but you’ve paid opportunity cost and risk-adjusted, expected return. All you need to know that when your business meets break-even point, you shouldn’t worry that much, this means that you, owner, won’t get profit from your capital, but all your costs were paid.  Here you need to start thinking on how to increase your income; this can be achieved by increasing sales or decreasing costs. But lets get closer to BEP.

Imagine your business sells computers, your expenses: fixed costs $10000, variable costs 7000$. From selling each computer you get net income $100

BEP=FC+VC/C.

BEP=10000+7000/100=170

So to meet break-even point you need to sell 170 computers every month, when you sell more, you’ll get gains.

If you increase selling price and will still sell 170 computers you’ll get gains.

Limitations of break-even analysis:
It’s hard to analyse when you have many products;
You need to know the difference between FC and VC;

There may be a tendency to continue to use a break-even analysis after the cost and income functions have changed