5.4.4—Break-even analysis

Break-even is the output where total revenue equals total cost. It depends on fixed costs, selling price and variable cost per unit; contribution per unit is price minus variable cost.

Break-even analysis shows the output needed to avoid an accounting loss and how safety margin changes when assumptions change.

If price is £10, variable cost £6 and fixed cost £2,000, contribution is £4 and break-even is 500 units. A price cut changes the calculation even if demand rises.

Break-even is a model based on assumptions such as constant price and unit cost; real demand and capacity may not behave linearly.