break-even-analysis

Vocabulary Word

Definition

'Break-even analysis' is a key financial tool. It calculates the point at which revenues equals costs, meaning you're neither making a loss nor profit. It helps businesses price products and assess future profitability.

Examples in Different Contexts

In cost management, 'break-even analysis' is essential for identifying the minimum sales required to avoid losses. A cost accountant might discuss, 'The break-even analysis has been instrumental in our decision-making process for budget allocations and cost-cutting measures.'

Practice Scenarios

Product

Scenario:

The development costs for our new product are substantial. Do we have a clear sense of the sales target required to offset this?

Response:

According to our break-even analysis, we have to sell roughly 4,000 units of the new product to cover the development costs.

Marketing

Scenario:

We're planning an extensive advertising campaign for the new product line. The budget is quite substantial, so we must measure the predicted increase in sales carefully.

Response:

Our break-even analysis forecasts that the ad campaign will become profitable after a 15% increase in sales.