Used to determine the number of units of a product to sell or produce (i.e.

volume) that will equate total revenue with total cost. The volume at which total revenue equals total cost is called the break-even point. Profit at break-even point is zero.

 Fixed Costs (cf ) - costs that remain constant

regardless of number of units produced. Variable Cost (cv) - unit cost of product. Total variable cost (vcv) - function of volume (v) and variable per-unit cost. Total Cost (TC) - total fixed cost plus total variable cost. Profit (Z) - difference between total revenue vp (p = price) and total cost. Z = vp cf vcv

 Average per unit sales price

Average per unit variable cost Average annual fixed cost

The break-even point is that volume at which total revenue equals total cost and profit is zero: V = cf/(p cv) Example: Western Clothing Company

cf = $10000
cv = $8 per pair p = $23 per pair V = 666.7 pairs, break-even point

 Break-even analysis is only a supply side It assumes that fixed costs (FC) are constant It assumes that the quantity of goods produced is

equal to the quantity of goods sold

Relative proportions of each product sold and

produced are constant (i.e., the sales mix is constant)

 Amazon.com : o In July 1995, the company began service o Break even in fourth quarter of 2001: $5 million on

revenues of more than $1 billion

Make my trip : o Founded in 2000 o Break-even by December 2008

Naukri.com o Founded in March 1997 o Naukri.com became profitable from the second year