Breaking even Point Custom Essay

Please prepare a half page response for each part.

Part 1

Breaking even refers to the point in a financial period in which costs is equal to that of revenue. Before the breakeven point is reached the business is running at a loss, once the breakeven point is reached all revenue that is brought in is considered profit. Breakeven analysis can be used to calculate sales targets for a range of different scenarios. For example how much will a business need to charge for a good or service to order a new piece of equipment? Considering breakeven analysis is important for any type of financial planning. Management can perform a BE analysis in order to plan for the amount of resources that will be needed to obtain a certain level of sales/profit.

Part 2

A point where total costs (expenses) and total sales (revenue) are equal is considered a break-even point (www.readyratios.com). Break-even point can also be described as where no profit or loss has impacted the company negatively; reference this as the point of indifference. If you were looking at it on a chart, it is the point where the total cost and the total revenue curves meet. The break-even point analysis is essential when managers are trying to make important business decisions such as preparing bids, setting prices and applying for loans (www.readyratios.com). The break-even point is also helpful in recognizing the relevance of fixed and variable cost.
The break-even point (analysis) is a tool used to guide decisions in the company about future products and services from a variable and fixed costs perspective. This is extremely important for a company’s growth and bottom-line. At all times we must know what’s working well and what needs to be addressed immediately in our company and the break-even point (analysis) is just that guiding tool that is used.