Profits-Volume Relationships:

Revenue of a firm is affected by the policies adopted by the competitors, by the firms pricing policy, and modification in market demand for the product and services rendered by the firm. Factors that affect the costs include the prices paid for inputs, business volume, and the efficiency of translating the input into output.

The study of profit-volume relationship of a business to recognize a point at which a business moves from loss to profit position is termed as break-even analysis. Break even analysis is a tool which discover the point, either in monetary terms or in terms of number of units, at which total costs equal revenues. The point is called break even point. Break even analysis needs a knowledge of fixed costs, variable costs and revenue.