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.
A breakeven chart (or breakeven graph) is a visual tool used to depict the relationship between an organization's total costs—comprising fixed and variable costs—and its sales revenue across different levels of activity. The intersection point of these curves shows the breakeven point, where total costs equal total revenue.
Cost Behaviour refers to the relationship and changes in total costs as a response to changes in activity levels within an organization, playing a crucial role in breakeven analysis and decision-making techniques.
The act of deciding between alternative courses of action. In the running of a business, accounting information and techniques are used to facilitate decision making, employing models like discounted cash flow, critical-path analysis, marginal costing, and breakeven analysis.
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.
Multiple breakeven points refer to two or more activity levels at which an organization breaks even, often occurring when cost and revenue functions are nonlinear and intersect more than once on breakeven charts.
The relevant range is the range of activity levels within which valid conclusions about cost behaviors and break-even points can be drawn from linear cost functions. Outside this range, the assumptions of linear relationships between costs and revenue may not hold true.
