![]() The basic theory illustrated in Figure 3.3 is that, because of the existence of fixed costs in most production processes, in the first stages of production and subsequent sale of the products, the company will realize a loss. (attribution: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license) Figure 3.3 illustrates the components of the break-even point:įigure 3.3 Break-Even Point. In other words, no profit or loss occurs at break-even because Total Cost = Total Revenue. ![]() The break-even point is the dollar amount (total sales dollars) or production level (total units produced) at which the company has recovered all variable and fixed costs. Using these assumptions, we can begin our discussion of CVP analysis with the break-even point. For example, if we are a beverage supplier, we might assume that our beverage sales are 3 units of coffee pods and two units of tea bags.
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