Forums Accounting What causes an increase in break-even point?

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    kritinidhi
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    What causes an increase in break-even point?

    #16489

    kritinidhi
    Member

    The break-even point is the point at which total cost and total revenue are equal. In other words, there is no net loss or gain. Break-even points can be useful to all avenues of a business, as it allows employees to identify required outputs and works meeting these. The break-even value is not a generic value and will vary dependent on the individual business. For example- a business which deals in electronic items, need to sell 300 items annually to achieve break-even point.

    The break- even point is one of the simplest analytical tool. Identifying a break-even point helps provide a dynamic view of the relationships between sales, costs, and profits.

    Now, the question arises that what causes an increase in break- even point?

    Well, following are the reasons for increase in break-even point-

    • Increase in fixed costs- The most common reason for increase in break-even point is increase in fixed costs. These are costs you must pay regardless of the level of volume sold. An increase in fixed costs such as rent, salaries, and utilities, can increase your break-even point.
    • Increase in variable costs- if variable costs increase, without an equivalent increase in revenues, the break-even point will increase to make up for the losses.
    • Increase in customer sales- when you manufacture more of your products to meet the additional customer demand then it may increase your break-even point.
    • Labor rework expenses can also increase your break-even point.
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