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Introduction of the term Break Even Point

Give a brief introduction of the term Break Even Point. How does BEP aid in making business decision?

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Break Even Point (or BEP) is a quantity of sales where there is neither profit nor loss. Which means contribution is sufficient to cover the fixed costs.

Therefore, we can say that Contribution = Fixed Cost

Any contribution generated after BEP will straight result in profits as the fixed costs are completely covered now. BEP can be evaluated in two ways:

In phrases of Quantity-

Fixed Costs / Contribution per unit

In phrases of Amount-

(Fixed Costs) / (P/V Ratio)

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