Question 1

What is a break-even point?

Accepted Answer

The break-even point is where total revenue equals total costs. At this point, a business has zero profit and zero loss. Selling more units beyond this point generates profit.

Question 2

How is break-even calculated?

Accepted Answer

Break-even units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). The denominator is called the contribution margin, which is how much each sale contributes toward covering fixed costs.

Question 3

What are fixed vs variable costs?

Accepted Answer

Fixed costs stay the same regardless of production volume (rent, salaries, insurance). Variable costs change with each unit produced (materials, shipping, packaging). Understanding both is essential for pricing.

Question 4

Why is break-even analysis important?

Accepted Answer

It helps determine the minimum sales needed to avoid losses, set profitable prices, evaluate new products, and make informed decisions about business investments and cost structures.

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