Break-Even Analysis

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels.

For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the break-even point for selling the widgets would be:

If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)

If selling for $200: 7 Widgets (Calculated as 1000/(200-50)=6.7)

In this example, if someone sells the product for a higher price, the break-even point will come faster. What the analysis does not show is that it may be easier to sell 20 widgets at $100 each than 7 widgets at $200 each. A demand-side analysis would give the seller that information.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Break even analysis — The break even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC). [Horngren, C.,Sundem, G Stratton, W. Introduction to Management Accounting (2002) Prentice Hall]… …   Wikipedia

  • Break-even analysis — An analysis of the level of sales at which a project would make zero profit. The New York Times Financial Glossary * * * break even analysis break even analysis ➔ analysis * * * break even analysis UK US noun [C] (plural break even analyses) ►… …   Financial and business terms

  • break-even analysis — An analysis of the level of sales at which a project would make zero profit. Bloomberg Financial Dictionary * * * break even analysis break even analysis ➔ analysis * * * break even analysis UK US noun [C] (plural break even analyses) ►… …   Financial and business terms

  • break-even analysis — Gen Mgt a method for determining the point at which fixed and variable production costs are equaled by sales revenue and where neither a profit nor a loss is made. Usually illustrated graphically through the use of a break even chart, breakeven… …   The ultimate business dictionary

  • Break-even (economics) — This article is about Break even (economics). For other uses, see Break even (disambiguation). The Break Even Point In economics business, specifically cost accounting, the break even point (BEP) is the point at which cost or expenses and revenue …   Wikipedia

  • Break-even — In economics, 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 . Therefore has not made a profit or a loss.ComputationIn… …   Wikipedia

  • break-even point — A level of activity at which total *costs equal total *revenues. Break even analysis can be applied to individual products or services, or to an entire organization. At a break even point, no profit or loss is made …   Auditor's dictionary

  • break-even chart — Gen Mgt a management aid used in conjunction with break even analysis to calculate the point at which fixed and variable production costs are met by incoming revenue. Lines are plotted to indicate expected sales revenue and production costs. The… …   The ultimate business dictionary

  • Break even rate in interest sensitivity analysis —   The average interest rate of the funding (negative gap) or the average interest rate of the lending (positive gap) necessary to break even (zero profit) the mismatch in each specified time period. See also Risk management …   International financial encyclopaedia

  • financial break-even — UK US noun [S] FINANCE, ECONOMICS ► the number of products that must be sold or the amount of income that must be earned for a product or investment to begin to make a profit: »The higher the financial break even point, the higher the financial… …   Financial and business terms

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