Business Finance and Arithmetic — Entrepreneurship STD 11 Commerce — Question
CBSE BoardEnglish MediumSTD 11 CommerceEntrepreneurshipBusiness Finance and Arithmetic4 Marks
Question
What do you mean by Break Even Point?
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Answer
Break even point is the amount or level of sales or revenues that it must generate in order to equal its expenses. In other words, it is the point at which the company neither makes a profit nor suffers a loss. Calculating the break even point (through break even analysis) can provide a simple, yet powerful quantitative tool for managers. In its simplest form, breakeven analysis provides insight into whether or not revenue from a product or service has the ability to cover the relevant costs of production of that product or service. Entrepreneurs can use this information in making a wide range of business decisions, including setting prices, preparing competitive bids, and applying for loans. It also helps in Profit Planning and Goal setting.
At the break even level,
Total Revenue = Total Expenses
The formula for calculating break even level is:
Break Even Volume (Per Month) $=\frac{\text{Fixed Cost (Per Month)}}{\text{Gross Margin Per Unit}}$
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