Breakeven analysis
Breakeven analysis is a financial tool used to determine the point at which a business's revenues equal its costs, resulting in neither profit nor loss. This point is known as the breakeven point. To perform this analysis, you calculate fixed costs (expenses that don’t change with sales, like rent) and variable costs (expenses that fluctuate with sales, like materials). Understanding the breakeven point helps businesses set sales targets, make pricing decisions, and assess the potential profitability of new products or services. Essentially, it shows how much need to be sold to cover all expenses.
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Breakeven analysis is a financial tool used to determine the point at which total revenues equal total costs, meaning there is neither profit nor loss. This "breakeven point" helps businesses understand how much they need to sell to cover their expenses. It involves calculating fixed costs (expenses that don't change with sales, like rent) and variable costs (expenses that vary with production, like materials). By knowing the breakeven point, businesses can set sales targets, pricing strategies, and assess the financial viability of their operations.