Break-Even Analysis

Overview

Break-even analysis finds the point where total revenue equals total costs — zero profit, zero loss. It separates costs into fixed and variable, then calculates the volume (units or revenue) needed to cover fixed costs through contribution margin.

Framework

IRON LAW: Fixed vs Variable Classification Must Be Rigorous

Fixed costs do NOT change with volume (rent, salaries, insurance).
Variable costs change PROPORTIONALLY with volume (materials, shipping per unit, commissions).

"Salaries" is NOT always fixed — a sales commission is variable.
"Rent" is NOT always fixed — a percentage-rent lease is variable.
Misclassification directly corrupts the break-even calculation.