Break-even & Profit

Fixed and variable costs, contribution, the break-even point, the margin of safety and profit.

Break-even analysis shows the level of output at which a business covers its costs.

Costs, revenue and profit

Fixed costs (FC) do not change with output (rent); variable costs (VC) rise with output (materials).

Total cost

= \text{FC} + \text{VC}

; total revenue

= \text{price} \times \text{quantity}

Profit

= \text{total revenue} - \text{total cost}

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Costs, revenue and profit

Fixed costs (FC) do not change with output (rent); variable costs (VC) rise with output (materials).

Total cost

= \text{FC} + \text{VC}

; total revenue

= \text{price} \times \text{quantity}

Profit

= \text{total revenue} - \text{total cost}