What is break even and why is it used?
Break even is the point in which total revenue and total costs ( fixed and variable) are the same. At this point no loss or profit is made, the company ' breaks even'.
It is used by managers as a simple, quantitive tool to asses whether the revenue from a product is able to cover the production costs.
It also helps to evaluate the estimated future demand of a product. For example, if the estimated demand lies above the break even point, it shows that a loss is likely to be made. They then may consider options such as discontinuing or re-pricing the product to increase demand.
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