Breakeven Analysis, also known as Cost-Volume-Profit (CVP) Analysis, is a managerial accounting technique in which costs are analyzed according to their fixed or variable nature and compared to sales revenue to determine the level of sales or production at which the business neither makes a profit nor incurs a loss.
The breakeven point is the level of production, sales volume, percentage of capacity, or sales revenue at which an organization makes neither a profit nor a loss. This critical financial metric helps businesses understand when they will start to become profitable.
The contribution margin is a key metric in marginal-costing systems, helping organizations determine the additional profit earned when production surpasses the breakeven point.
The difference between the level of activity at which an organization breaks even and a given level of activity greater than the breakeven point, especially the forecast level in a breakeven analysis. The margin of safety may be expressed in the same terms as the breakeven point, i.e., sales value, number of units, or percentage of capacity.
The margin of safety ratio is a financial metric used to measure the amount by which sales can drop before a business reaches its break-even point. It is expressed as a percentage of current sales.
A PV chart graphically displays the relationship between profits, losses, and different levels of business activity, highlighting the breakeven point and fixed costs.
