Business revenue, costs and profits

• Break-even is the point at which a business is not making a profit or a loss.
• Businesses calculate their break-even point and are able to plot this information on a break-even graph.
• Break-even is the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss.
• The break-even level of output informs a business of how many products it needs to sell to reach the break-even point (BEP).
• Break-even is calculated as follows: Break-even = fixed costs ÷ (selling price − variable costs).
• The result of this calculation is always how many products a business needs to sell in order to break even.
• The fixed costs of a business are expenses it has to pay which do not change with output, such as rent.
• The variable costs of a business are expenses it has to pay which change directly with output, such as raw materials.
• The break-even point (BEP) is calculated as follows: Break-even = fixed costs ÷ (selling price − variable costs).
• Break-even is the point at which a business is not making a profit or a loss
• Businesses calculate their break-even point and can plot this information on a break-even graph
• A break-even graph visually shows the revenue, costs, number of products sold, and the break-even point where revenue equals total costs
• To create a break-even graph:

  1. Plot fixed costs on the vertical axis as a horizontal line since fixed costs don't change with output

  2. Plot variable costs starting at the same point as fixed costs, as variable costs added to fixed costs give total costs

  3. Plot the revenue line by multiplying the sales price by the number of units sold

  4. The break-even point is where the revenue line crosses the total cost line, indicating no profit or loss
• Break-even is the point at which a business is not making a profit or a loss
• Businesses calculate their break-even point and are able to plot this information on a break-even graph
• The margin of safety is the amount sales can fall before the break-even point is reached and the business makes no profit
• Margin of safety calculation: Margin of safety = actual sales − break-even sales
• Example: if a business has a break-even point of 100 products and has made 150 sales, the margin of safety is 50 products
• A company can use its margin of safety to assess whether a product is worth selling or not
• Break-even is the point at which a business is not making a profit or a loss
• Businesses calculate their break-even point and can plot this information on a break-even graph
• An increase in revenue is positive for a business as it likely leads to increased profits and allows the business to surpass its break-even point and increase its margin of safety by selling more products
• However, an increase in revenue only benefits the business if costs remain the same or decrease; if costs increase, the increase in revenue may have no impact
• A decrease in revenue is detrimental to a business, risking not breaking even or having low margins of safety and profit levels, unless costs are also decreasing
• Increasing costs usually have a negative impact on a business, likely increasing the break-even point or reducing the business' profit
• With increasing costs, a business may need to sell more products to break even or make a profit, and may have to decide whether to absorb the increased costs or pass them on to customers by raising prices
• Decreasing costs are positive for a business, lowering the break-even point and providing access to more profit, as the business will need to sell fewer products to break even
• A business may choose to keep cost savings as profit or pass them on to customers as a price decrease
• Break-even is the point at which a business is not making a profit or a loss
• Businesses calculate their break-even point and are able to plot this information on a break-even graph
• Profit is represented on a break-even graph as anything above the break-even point (BEP), displayed as the shaded area between the revenue and total cost lines
• The bigger the profit area on a break-even graph, the more profit the business is making
• Loss is represented on a break-even graph as anything below the break-even point, displayed as the shaded area between the revenue and total cost lines, below the BEP
• A large area of loss on a break-even graph represents a high level of sales required to break even