Break-even analysis

Chapter 4 provides an in-depth examination of break-even analysis in the context of pricing decisions. It defines the break-even point as the sales volume at which total revenue equals total cost, resulting in zero profit. The chapter then extends this concept to evaluate the profitability of price changes by calculating the minimum required sales change to break-even from a price increase or decrease. Scenarios involving changes in variable and fixed costs are also explored, along with formulas for both absolute and percentage break-even volume changes. Graphical tools, such as break-even sales curves, are introduced to help visualize the trade-off between price and volume. The chapter concludes by demonstrating how these methods are applied using practical business cases and Excel examples.