ECONOMICS

Detailed explanation-1: -Break-even analysis refers to the point in which total costs and total revenue are equal. A break-even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs.

Detailed explanation-2: -The break-even point is calculated by dividing the total fixed costs of production by the price per individual unit less the variable costs of production. Fixed costs are costs that remain the same regardless of how many units are sold.

Detailed explanation-3: -Managers typically use breakeven analysis to set a price to understand the economic impact of various price-and sales-volume scenario. Pricing matters. Having the right price for a product or service can boost profit much faster than increasing volume.

Detailed explanation-4: -The break-even point is reached when total costs and total revenues are equal, generating no gain or loss (Operating Income of $0). Business operators use the calculation to determine how many product units they need to sell at a given price point to break even or to produce the first dollar of profit.

Detailed explanation-5: -To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.