What do you mean by break even analysis? With the help of a graph explain break - even point.

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 Break - even analysis entails the calculation and examination of the margin of safety for an entity based on the revenues collected and associated cost. Analyzing different price levels relating to various levels of demand an entity uses break-even analysis to determine what level of sales are needed to cover total fixed cost. A demand size analysis would give a seller greater insight regarding selling capabilities.

The basic formula for the break-even analysis is as follows:

P(X) = A+B(X) where 'P' is the per unit sales price, A is the fixed cost and B is the variable cost per unit.

The basic idea behind doing a break-even analysis is to calculate the point at which revenues begin to exceed costs.

The "break-even point" is the production level where total revenues equals total expenses.In other words the break-even point is where a company produces the same amount of revenues as expenses either during a manufacturing process or an accounting period . Break-even is the point of balance making neither a profit nor a loss.

Break-even point can be found out graphically which enables the owner to see more clearly break-even point and financial position of the firm.



                                                                Fig: Break-even chart
 TC - Total cost line
 SR - Sales revenue line
 B E P - Break-even point
 F C - Fixed cost line



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