Operations Management: Sustainability and Supply Chain Management, Twelfth Edition

Break-Even Analysis

Break-even analysis is the critical tool for determining the capacity a facility must have to achieve profitability. The objective of break-even analysis is to find the point, in dollars and units, at which costs equal revenue. This point is the break-even point. Firms must operate above this level to achieve profitability. As shown in Figure S7.5, break-even analysis requires an estimation of fixed costs, variable costs, and revenue.

Break-even analysis

A means of finding the point, in dollars and units, at which costs equal revenues.

Fixed costs are costs that continue even if no units are produced. Examples include depreciation, taxes, debt, and mortgage payments. Variable costs are those that vary with the volume ...