5.4 Break even GapFill

Break even relates to the relationship between  fixed coststotal costsdirect costsindirect costs and  total revenueincomemargin of safetyrevenue. Break even occurs when these two figures are equal. Break even is measured in  revenueunits soldprofitunits purchased. Care must be taken to round up a figure in  customerseurosdecimalssterling as it is not possible to sell part of a whole unit to a customer. 

Break even does not show  how latehow earlyhow widehow long it will take to reach the break-even quantity. This means that businesses have to also think about how  quicklybroadlyspecificallygenerally they expect to sell this amount of units. Break even is difficult to use when the business has a  growthproduct life cycleproduct portfoliolaunch because each product will need a separate calculation for break even. It's easier to use in a new business with one product, or for a specific project or purchase of a new  social mediamachineadvertmember of staff in a larger business. 

Break even can help business owners make plans and decisions based on the quantity of sales needed to break even, though it can't deal easily with  changes in pricenew productsnew staffadvertising.  

Equally, decisions may have been made based on break-even quantities that can change if businesses make large  mistakesordersphone callsinvestments for raw materials, because this usually results in a discount. Discounts can reduce costs, and therefore the break-even point  increasesupdatesstays the samereduces.