How Does The Production Volume Affect The Break Even Analysis?


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Breakeven is the point, also known as the cost, profit volume analysis is about finding the point where the sales (Revenue) equals the total costs. This analysis is all about determining the volume at which the revenues will be just enough to cover up all the costs, that is, profits will be zero. The production above this level will contribute to profits. As we know revenue is the product of price and quantity, the more you increase the quantity, the more revenues you will have. That is why production volume is important as it is the production volume that determines the point at which you will break even as it is not possible for the producer to change the price a lot while the volume can be varied. The production volume is essential in determining how much we have to produce to become profitable.

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