The break-even point or Break-even analysis can be defined as a point where total costs (expenses) and total sales (revenue) are equal. Break-even point can be described as a point where there is no net profit or loss. The firm just “breaks even.” Any company which wants to make abnormal profit, desires to have a break-even point. Graphically, it is the point where the total cost and the total revenue curves meet.
Break-even point is a financial tool which helps a company to determine the company will be profitable or not.
Formula of BEP
BEP = Total Fixed Cost/PV Ratio
PV Ratio = Contribution/Sale*100
Contribution = Sale – Variable Cost
Example of how to calculate BEP
