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Break-Even Analysis is used to calculate the break-even point where total revenue equals total costs. This point results in zero profit or in other words at this point the business recovers the variable and fixed costs of doing business at a certain revenue level. In order to perform Break-Even Analysis the following variables are required: |
| - Total Revenue (TR) which is calculated as number of products sold times unit price |
- Total Fixed Costs (TFC) generally this number will not change unless the analysis is for a large range / changes in the
revenue |
| - Total Variable Cost (TVC) which varies directly with the number of products sold |
| The Profit (P) is calculated as total revenue minus total cost: |
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P = TR –TC |
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Where: |
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TR = Unit Price x Units Sold |
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TC = TFC + TVC |
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| The Break-Even Point shows the number of units the company must sell in order to break even or generate zero profit. |
| The Break-Even Revenue shows the revenue the company must make in order to break even or generate zero profit. |
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Free download:
Break-Even Chart for Microsoft Excel - This excel break-even analysis chart creates chart with +/- 50% of the revenue you specified so you can see how sensitiveis your business model / cost structure. |
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