Components of Break-even Analysis
The three components of Break-even Analysis are as follows:
1. Fixed Costs: These are the costs that the company has to bear even when there is no production of units. Fixed costs remain constant and do not change with the level of production. Fixed Costs are also known as Overhead Costs. For example, Rent or mortgage, equipment costs, salaries, taxes, insurance premiums, etc.
2. Variable Costs: Variable Costs are the costs that change with the change in output. Variable Costs rise as the production rises and falls when production falls. These costs include packaging costs, wages, cost of raw materials, etc.
3. Selling Price: Selling price is the amount that the seller/company charges the customers in exchange for their product or services. The selling price is determined on the basis of raw materials used for production, wages, fixed expenses, etc.
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