An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.
Break-even
analysis is a supply-side analysis; that is, it only analyzes the costs of the
sales. It does not analyze how demand may be affected at different price
levels.
For example, if it costs $50 to produce a widget, and
there are fixed costs of $1,000, the break-even point for selling the widgets
would be:
If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)
If selling for $200: 7 Widgets (Calculated as
1000/(200-50)=6.7)
In this example, if someone sells the product for a
higher price, the break-even point will come faster. What the analysis does not
show is that it may be easier to sell 20 widgets at $100 each than 7 widgets at
$200 each. A demand-side analysis would give the seller that information.
According to Boone & Kurtz: The break-even point is the point where total
revenue just equals total cost.
According to
Pride & Ferrell: Breakeven point is the point at which the costs of
producing a product equal the revenue made from selling the product.
According to Steven J. Skinner: The break –even point is the point at
which the cost of making a product equals the revenue made from selling the product.