Title: Explain the concept of break-even analysis.
Course: Entrepreneurship, Advanced (12053-II) > Section: Projecting Financial Requirements

Explanation should include the formula used in a sales-based business to analyze whether an expenditure will result in a profit. The break-even point is reached when sales and costs are equal. The break-even formula may be expressed as

BP = FC / VCM

or break-even point (BP) is equal to the fixed cost (FC) divided by the variable cost margin (VCM). VCM is equal to the unit price minus the variable cost per unit.

Process/Skill Questions:

- How can the business owner communicate company financial goals to employees?
- What is the difference between fixed and variable operating costs?
- What is the importance of determining the break-even point?
- How does the break-even point determine product prices?
- How does the break-even point affect business decisions? Product mix decisions?
- What financial estimates are needed for a break-even analysis?