BREAK EVEN ANALYSIS

Break even analysis is mainly used to explain the relationship between the cost incurred, the volume operated at and the profit earned. To compute the breakeven point we let

S be selling price per unit
V_u be variable cost per unit
Q be break-even quantities
F be total fixed costs

At Breakeven point:

Total revenue (TR) = Total Cost (TC)

Total revenue will be given by SQ while Total cost (TC) = V_u Q + F

At break-even point (BEP) therefore:

SQ = V_u Q + F

Q =  F
     S- V_u

B.E.P (in units) =   F          
                       S- V_u