Break-even point is the point used to indicate the level of production or sales at which total revenue equals the total costs the business spends.
There are two types of break-even points:
- Economic break-even point (also known as break-even point before interest)
- Financial break-even point (also known as break-even point after interest)
Recipe: BEP = FC/(S-VC)
The break-even point allows businesses to know at what level of sales volume or revenue the business will break even. Therefore, businesses need to consume an output level that exceeds the break-even output to be profitable; Otherwise, the business will suffer losses.