Break-even Point
The point at which the difference of summation or subtraction or even any equivalent changes side is known as break-even point. In subject to economics and business, particularly cost accounting, BEP or break-even point is actually the point where the expenses or cost equals the revenue and results to no net profit or loss. This means, that there has been no significant gain or loss, but opportunity costs have been done and the sum gathered is risk-adjusted, expected return.
In cost accounting, break-even point plays an important role. It determines and evaluates the quantity of sale of various goods and products which will be profitable for the business or organization. Initially, the break-even point is detected on graph consisting of net sale and net cost on varied levels of sale unit and then analysis is made on it by studying the cause and effect relationship on the increase and decrease of the sale. After determining the cause and effect, study is made on the sale and significant facts and data is collected, as this can be helpful for running business successfully.
As soon as the amount of sale is determined through the break-even point calculated on graph, it becomes easy for the business firm or company to establish the amount of sale as net cost of company is equivalent to its revenue. However, at times it may not be possible for a company to determine the level of quantity of sale; then in that case, the company can just simply increase the cost or decrease the variable and fixed price so as to secure the business from further loss.
Break-even point renders a lucid image of price, amount of sale, gain and relationship with each other. Hence, in case of cost accounting, break-even point or BEP is necessary to be analyzed.
Written by: Matt
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Tagged as basic functions of management, bep, break even point, business firm, cause and effect, cause and effect relationship, cost accounting, economics, functions of management, graph, net profit, opportunity costs, subtraction, summation + Categorized as Economy articles, Finance, Ladership & Management