breakeven analysis
breakeven analysis(cost-volume-profit analysis; CVP analysis) The technique used in management accounting in which costs are analysed according to cost behaviour characteristics into fixed costs and variable costs and compared to sales revenue in order to determine the level of sales volume, sales value, or production at which the business makes neither a profit nor a loss (seebreakeven point). The technique is also used in decision making to assist management to determine such questions as the profit or loss likely to arise from any given level of production or sales, the impact on profitability of changes in the fixed or variable costs, and the levels of activity required to generate a desired profit. Breakeven analysis may either be carried out by drawing a breakeven chart or by calculation. For example, the formula for determining the level of activity required to generate a desired profit is:
See alsocontribution.