Break Even Point


Break-Even point: Fixed costs / Selling price - Variable costs = break-even!

Break-even is when the predicted revenue exactly equals the estimated total costs. This is the point where all money you make becomes profit and your cash flow becomes positive.

Fixed Costs

fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales.

Variable Costs

Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output.

Total Costs

Total costs are the variable costs and the fixed costs added together.

Sales Revenue

In business, revenue  is income that a company receives from standard business activities, usually from the sale of goods and services to customers. In many countries and states, revenue is referred to as turnover.

What affects BEP?

Fixed costs and number of sales both affect BEP. This is because break-even only happens when a certain amount of products have been sold at a specific price, therefore the business makes its money back. BEP is useful for a business because as soon as it has been reached the business knows they are making profit and do not have to worry about losing money.

A better look into real examples.

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