Everything about Break-even totally explained
In
economics, specifically
cost accounting, the
break-even point (BEP) is the point at which cost or expenses and revenue are equal: there's no net loss or gain, and one has "broken even".
Computation
In the linear
Cost-Volume-Profit Analysis model, the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:
»
R=C
Where R is revenue generated
C is cost incurred for example
Fixed costs + Variable Costs
or
Q X P(Price per unit)=FC + Q X VC(Price per unit)
Q X P - Q X VC=FC
Q (P-VC)=FC
or
Q=FC/P-VC=Break Even Point
Application
The break-even point is one of the simplest yet least used analytical tools in management. It helps to provide a dynamic view of the relationships between sales, costs and profits. A better understanding of break-even—for example, expressing break-even sales as a percentage of actual sales—can give managers a chance to understand when to expect to breakeven (by lining the percent to when in the week/month this percent of sales might occur).
The break-even point is a special case of
Target Income Sales, where Target Income is 0 (breaking even).
There is a myth that
Black Friday is the annual break-even point in American
retail sales, but in fact retailers generally break-even (and indeed profit) nearly every quarter.
Other uses of the term
The break even point is also the point on a
chart indicating the time when something has broken even, and is a general term for not having gained or lost something in a process.
In
nuclear fusion research, the term
breakeven refers to a
fusion energy gain factor equal to unity, this is also known as the
Lawson criterion.
The notion can also be found in more general phenomena, such as
percolation, and is rather similar to the
critical threshold. In energy, the
breakeven point is the point where usable energy gotten from a process exceeds the input energy.
In
computer science, the term refers to a point in the life cycle of a
programming language where the language is capable of developing its own
compiler or
interpreter. This is also called
self-hosting. This usually marks a transition from a "toy" language to a language usable in the real world.
In
medicine, it's a postulated state when the advances of medicine permit every year an increase of one year or more of the life expectancy
of the livings, therefore leading to medical immortality (barring accidental death).
Further Information
Get more info on 'Break-even'.
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