Fixed costs remain constant regardless of production levels, while variable costs change with production. The break-even point is where total revenue equals total costs, indicating no profit or loss. Break-even analysis determines the sales or production volume needed to cover total costs and calculates fixed and variable costs to evaluate new ventures and products, set goals, and understand the relationship between production and marketing.

1. INTRODUCTION
• The break-even point is the point at which
revenue is exactly equal to costs. At this point,
no profit is made and no losses are incurred.
• The break-even point can be expressed in
terms of unit sales
• That is, the break-even units indicate the level
of sales that are required to cover costs. Sales
above that number result in profit and sales
below that number result in a loss.

3. BREAK-EVEN ANALYSIS IS BASED ON
TWO TYPES OF COSTS:
Fixed costs
Variable costs

4. FIXED COSTS:-
• Fixed costs are those business costs that are not
directly related to the level of production or
output.
• In other words, even if the business has a zero
output or high output, the level of fixed costs will
remain broadly the same.
• In the long term fixed costs can alter - perhaps as
a result of investment in production capacity (e.g.
adding a new factory unit) or through the growth
in overheads required to support a larger, more
complex business.

5. EXAMPLES OF FIXED COSTS:
Rent and rates
Depreciation
Research and Development
Marketing costs (non- revenue related)
Administration costs

6. VARIABLE COSTS:-
• Variable costs are those costs which vary
directly with the level of output.
• They represent payment output-related inputs
such as raw materials, direct labour, fuel and
revenue-related costs such as commission.

8. IMPORTANCE:-
• Break-even analysis can be very helpful in the
evaluation of a new venture.
• Many new enterprises and products actually operate at
a loss (at a point below break-even) in the early stages
of development.
• Knowing the price or volume necessary to break-even
is critical to evaluating the time-frame in which losses
are permissible.
• The break-even is also an excellent benchmark by
which a company’s short-term goals can be
measured/tracked.
• It also keeps a focus on the connection between
production and marketing.