Thursday, 26 September 2013

Break Even

Break Even

The aim of most businesses is profit maximisation. Profit is shown by the difference between a firm’s revenue and their costs. Costs can be classified into 2 categories.

  • Fixed costs – these are costs that do not change directly with the level of output, e.g. rent
  • Variable costs – these are costs that do change directly with the level of output, e.g. stock

Total costs = Fixed costs + Variable costs

At the break even point a firm’s cost and revenue are the same.