ABSTRACT
In this chapter we are going to explore break-even analysis and look at the following aspects:
Definition• Fixed and variable costs• Assumptions• Example of technique• Nonlinear break-even analysis•
The break-even point is the point at which the business neither makes a profit nor incurs a loss. It is the point at which the total of fixed and variable costs is exactly offset by the revenues. Of course, you want to make a profit, so the goal is always to generate revenue beyond the break-even point. For example, many kids set up lemonade stands. Assume their parents bought the wood for the stand, built the stand, and bought the sign, pitchers, glasses, and lemonade mix. The little entrepreneurs sell five glasses at 25¢ and are happy with their profit of $1.25. However, their parents know they spent $20 to set up the business and their initial costs have not been recovered.
