The break-even point

The break-even point can help you visualise the relationship between various costs over time. It identifies the moment where you have recovered your total cost and begin making a profit, and is often displayed as a dollar amount on a graph.

There are two types of costs: fixed and variable. Fixed costs are those that do not change with time or sales and profits, such as the cost of purchasing standard machinery. Variable costs change over time and depend on sales volumes, such as purchasing materials and labour costs.

The following example explains how to calculate your break-even-point, using a hypothetical income statement that looks like this:

Sales: $200,000
Cost of sold items: $60,000
Wages: $40,000
Fixed expenses: $80,000
Profit: $20,000

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