What is the role provided by break-even point and how would you calculate this point?

In finance and economics, the break-even point refers to a level at which revenue is equal to costs. This is where a company does not gain or lose any money. Businesses can use this information to determine how much product or service they must sell to stay profitable.

Understanding both the revenue structure and cost structure is necessary to calculate break-even. To calculate the break-even point, subtract total variable costs and divide by total revenue. The result is then divided by contribution margins. More specifically, this calculation can be written as Break-Even Point = Fixed Costs/(Revenue per Unit – Variable Costs per Unit). Businesses can plan better their sales or production strategies by understanding the break-even point. This will help them remain competitive and ensure profitability.