Break-Even Point analysis is essential. Without a clear understanding of your break-even point, you will not know what to produce, and how much of it you should produce. It tells you what is the minimum number of units that must be produced to start turning a profit.
- Production Above the Break-Even point, you are contributing to society economically, and creating wealth for your family.
- Production Below the Break-Even point, you are contributing to the national debt, and ultimately reducing the wealth of your family.
Your Selling Price per Unit:
Depending on the business you operate, one of the options below will apply to you
- Price Setter: You have the liberty and power to set the price as you deem fit.
- Price Taker: The market or the Government sets the price for you.
If you have the liberty of setting your selling price, and actually selling products at your desired price, then you have a high chance of maximizing your profits.
Your Fixed Costs per Unit
These are costs that will remain the same no matter how many units you produce. A simple example is the Car Loan that Mr Jones need to pay each month until the period of his loan ends. No matter how many trips he takes or does not take, Mr Jones still need to pay the Bank every month. This is a fixed cost for Mr Jones.
Your Variable Costs per Unit
These are costs that fluctuate with the number of units you produce. The more units you produce, the most variable costs that you will incur.
Each time Mr Jones drives his car, he needs to buy Gasoline, and as time goes by there are repair bills. The more the car is used, the larger the Gas bill and the repair. These are variable Costs.
