Calculate break-even point
Break-even Units = Fixed Costs ÷ (Selling Price - Variable Cost per Unit). If fixed costs are ₹50,000, price is ₹100, and variable cost is ₹60, break-even = 50,000 ÷ 40 = 1,250 units.
Break-even Revenue = Fixed Costs ÷ Contribution Margin Ratio. If fixed costs are ₹50,000 and CM ratio is 40%, break-even revenue = ₹50,000 ÷ 0.40 = ₹125,000.
Fixed: rent, salaries, insurance, depreciation—don't change with output. Variable: materials, direct labor, commissions, shipping—change with each unit produced/sold.
Lower fixed costs, reduce variable costs per unit, or increase selling price. Each approach has tradeoffs—cutting quality might reduce sales; raising prices might reduce volume.
It shows minimum sales needed to avoid losses, helps set sales targets, informs pricing decisions, and demonstrates viability to investors. It's essential for business planning and budgeting.
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