DEFINITION of 'BreakEven Analysis'
An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Breakeven analysis calculates what is known as a margin of safety, the amount that revenues exceed the breakeven point. This is the amount that revenues can fall while still staying above the breakeven point.
INVESTOPEDIA EXPLAINS 'BreakEven Analysis'
Breakeven analysis is a supplyside analysis; that is, it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels.
For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the breakeven point for selling the widgets would be:
If selling for $100: 20 Widgets (Calculated as 1000/(10050)=20)
If selling for $200: 7 Widgets (Calculated as 1000/(20050)=6.7)
In this example, if someone sells the product for a higher price, the breakeven point will come faster. What the analysis does not show is that it may be easier to sell 20 widgets at $100 each than 7 widgets at $200 each. A demandside analysis would give the seller that information.
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