Short definition: Break-even analysis is a financial calculation that determines the point at which total revenue equals total costs, resulting in neither profit nor loss.
Explanation: It is a useful tool for businesses to determine the minimum sales volume needed to cover all costs and start generating profit. Break-even analysis helps in pricing decisions, setting sales targets, and understanding the relationship between costs, volume, and profit.
Example: A company with fixed costs of $10,000 per month, variable costs of $5 per unit, and a selling price of $10 per unit would need to sell 2,000 units to break even.
Additional information (optional): Break-even analysis can be conducted using different methods, such as the equation method or the contribution margin method. It can also be represented graphically using a break-even chart.