What is a Break-Even Analysis?
Breakeven analysis is a method to analyze the balance between project costs and benefits through the breakeven point (BEP). Variations in various uncertain factors (such as investment, cost, sales volume, product price, project life cycle, etc.) will affect the economic effect of the investment plan. When the change of these factors reaches a certain threshold, it will affect the choice of the plan . The purpose of break-even analysis is to find this critical value, which is the break-even point (BEP), to judge the tolerance of investment plans to changes in uncertain factors, and to provide a basis for decision-making.
Breakeven analysis
- Breakeven Analysis
- 1. According to the different analysis methods used: graphic method and equation method;
- 2. According to the functional relationship between the analysis elements, it is divided into: linear and nonlinear breakeven analysis;
- 3. According to the number of product types analyzed, it can be divided into single product and multi-product breakeven analysis;
- 4. According to whether to consider
- which is
- I = S- VC × Q + F
- = P × Q- VC × Q + F
- = (P-VC) QF
- Isales profit Pproduct sales price
- F
- Total cost: C = F + Cv × Q
- Total income: S = P × Q
- List the breakeven equation: C = S
- P × Q = F + Cv × Q
- Unit Marginal Contribution: The difference between the price of a single product and the variable cost of a single product is called the unit marginal contribution (= P-Cv);
- Marginal contribution rate: the ratio of the marginal contribution of a unit product to the price of a single product (= unit marginal contribution / P);
- Total Marginal Contribution: The product of the unit marginal contribution and the sales volume is referred to as the total marginal contribution (= unit marginal contribution × Q).