This article deals with a tool that lets you know when you are making money and that suggests ways to make more. I will discuss the break-even point, see how to calculate and chart it, and see its uses in the day-to-day operation of business. First, let's find out what it is.
Break-even analysis is another accounting tool developed by business owners to help plan and control the business operations.
The Break-Even Point
The break-even point is the point at which the income from sales will cover all costs with no profits. The business owner or manager usually considers several factors when studying break-even analysis:
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The capital structure of the company.
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Fixed expenses such as rent, insurance, heat, and light.
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Setup of the organization.
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Variable expenses.
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The inventory, personnel, and space required to operate properly.
The study of these factors will inform the business owner of the possibilities of lowering the break-even point and increasing the gross profit margins. When attempting to determine the prospect of success for a new operation, the analysis of the break-even point may indicate the advantages or disadvantages in modifying the proposed level of operation
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