Break-Even Analysis

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Definitions and terms used in Break-Even Analysis

Selling Price per Unit
The price that a unit is expected to be sold for.
Selling Units
The number of units expected to be sold (determined by a contract or market research).
Fixed Cost (FC)
The cost that remains constant within a range of production or sales, regardless of the number of units produced or sold within that range. Typical fixed costs are: rent, mortgage, equipment, salaries, insurance, fixed utilities (office utilities) etc.
Variable Cost per Unit
The cost that vary with the production or the purchase of one unit.
Total Variable Cost (VC)
The cost that varies directly with the number of units produced or sold. Typical variable costs are: materials, packaging and shipping, sales commission, hourly wages, variable utilities (factory utilities) etc.
Total Variable Cost = Selling Units x Variable Cost per Unit
Total Cost (TC)
Total expenses incurred in the process of producing or selling a number of units.
Total Cost (TC) = Fixed Cost (FC) + Total Variable Cost (VC)
Total Revenue
The total sales value of the units produced or sold.
Total Revenue = Selling Units x Selling Price per Unit
Profit
The benefits from producing or selling a number of units.
Profit = Total Revenue – Total Cost
Break-even point
The point where total revenue (total sales) equal total cost.