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Break-even Analysis

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Break-even analysis refers to the point whereby a business’s earned revenue is the same

with the costs of producing or retailing a given merchandise. At a break-even point, there are no

profits or losses that are being incurred by a given business. Therefore, break-even as an

important analytical instrument can allow a business manager to determine the quantity of sales

that the business should make in order to settle it’s fixed as well as variable costs. Generally,

there are three different forms of a break-even analysis.

One of these is the unit break-even point. The unit break-even point analysis can allow

businesses to determine the precise amount of sales that they should make in order to settle the

net cost and break-even (Sintha, 2020). The revenue break-even point is another form of carrying

analysis within a business which can allow it to determine the amount of revenue required for it

to settle the net costs and break-even. The last form of a break-even analysis is the tie break-even

point which can help businesses to determine the precise time needed for them to arrive at a

break-even as influenced by their fixed costs, variable costs, and selling costs for every unit.

All of the three types of break-even analysis are equally important in the business world.

In the business world, a break-even analysis can allow entrepreneurs to know the number of sales

required for a business to settle its net costs and even break-even (Sintha, 2020). Therefore, it is a

key financial tool that is used to make significant decisions such as the best pricing technique to

apply. In addition, it can allow managers to make informed decisions on the management of

costs incurred and even the most suitable operations for them to formulate and implement in a

business set-up. Besides, break-even analysis can allow businesses to track and evaluate their

levels of performances within their markets. As a result, they are at the best position of

determining the strategies that can allow them to achieve the best profits.
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Reference

Sintha, L. (2020). Importance of Break-EVEN analysis for the micro, small and medium

enterprises. International Journal of Research-GRANTHAALAYAH, 8(6).