Break-Even Analysis
Break-even analysis uses fixed and variable costs to determine the amount needed to become profitable. Regardless of output, fixed costs remain constant and variable costs change over time. Break-even analysis is useful for decisions regarding eliminating or introducing certain products or projects. This is particularly important for a corporate entrepreneurship to ensure efficiency and effectiveness in utilizing resources. Organizations break even when total costs equal total revenue earned:
P(x) = FC + VC(x)
Where: P = selling price of the new product
x = break-even point
FC = fixed costs
VC = variable costs
This break-even equation allows various prices to be used to determine various break-even points. These prices should ...
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