BREAK-EVEN

6 May 2016 By PDSNET

A term used by accountants to indicate that a company has reached the point where it is neither making a loss nor a profit. The expenses at a company are divided into fixed (those which are not dependent on the level of sales) and variable (which go up and down with sales). In the profit calculation, the variable expenses are deducted from turnover (the total of sales and other revenue) to arrive at gross profit. Then the fixed expenses are deducted. The break-even point is sufficient sales for the fixed expenses to be completely covered. After that, any additional sales will generate a profit and if there are insufficient sales to cover the fixed costs the company will make a loss. Cost accountants also calculate the break-even point of individual product lines. That is the point at which the product begins to contribute to profits.



Share this glossary term: