# Break-even point

What happens at a company's break-even point? How can you compute the break-even point for a company? How can a change in costs for a product or service be incorporated into the break-even calculation

 buffy1954 Posts: 1, Reputation: 1 New Member #2 Jun 26, 2008, 06:32 AM
At first you must know the difference between fix costs and variable costs.
It is easy after that to construct diagram of break even point,by drawing line of fix
Cost parallel with X ose of diagram(value of fix cost per year). After that draw variable cost from fix costs up(value of variable costs raising with capacity of production),so line is under certain angle up.
Finaly draw sale lines from zero(0). Where variable cost and sale line cross that is break even point (costs are covered with sales).
I want to stress once again that is important to classify costs in two groups.Variable and fixed.Without that no one can do nothing. Fixed costs are for example ,salaries,promotion costs ,advertising,mortgage,rent etc.
Changes in costs will increase or decrease costs(variable or fixed),so projecting line of costs will be changed as well.Break even will be on higher level or on smaller level.
I do not want to bother you with contribution balance , it will be so difficult to explain on this way.Note, all math comes from simple equation SALES=FIX COST+VARIABLE COSTS+PROFIT. Solve this equation for one of member,you will see composition of costs.
I hope it will be helpfully

Regards
Zoran Nikolic

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What happens at a company's break-even point? How can you compute the break-even point for a company? How can a change in costs for a product or service be incorporated into the break-even calculation?