Breakeven Point Essay, Research Paper
Breakeven is the
point at which a business is neither making money nor losing money, and
managing to cover their costs exactly. This is a businesses main objective from
the start. Below the point of breakeven is a loss and above it is a profit.To help them to get started, businesses often have to take
out loans. Paying off these loans is essential. The company?s breakeven point can be found by using a
graph, to find the total costs, fixed costs, and revenue. The point at which
the total costs and total revenue lines cross is the businesses breakeven
point, and after this they will go into the profit area. The stock, which the company sells after they have broken
even, is known as the ?margin of safety.? A graph is a good way of displaying this, as it can be
seen straightaway how likely the firm is to actually manage to cover their
costs. However charts can never be totally accurate, as new stock/machinery
could be bought, and costs such as shop rent could increase.The breakeven point is calculated by: Fixed Costs ——————————– Sales Prices ? Variable Costs