Break Even Analysis

Break Even Analysis is useful in the determination of the level of production or in a targeted desired sales mix. It entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated costs. Break Even Analysis depends on assumptions made for average per-unit revenue, average per-unit cost, and fixed costs. It looks at the level of fixed costs relative to the profit earned by each additional unit produced and sold. It provides a dynamic overview of the relationships among revenues, costs and profits.