5.5 Break-even Analysis

Break-even quantity

Minimum quantity of a product that a company has to sell to begin making a profit.

Contribution per unit

The Difference between selling price per unit and variable cost per unit.

Total Contribution

The difference between total sales revenue and total variable costs.

Profit

Obtained by subtracting total fixed costs from the total contribution; the positive difference between total revenue and total costs.

Break-even Chart

A graphical method that measures the value of a firm’s costs and revenue's against a given level of output.

Margin of Safety

The output amount that exceeds the break-even quantity.

Target Profit Output

The level of output that is needed to earn a specified amount of profit.