BREAKEVEN ANALYSIS

Breakeven analysis is determining when the costs of the existing product, service, and so forth, equal the costs of the proposed one. The point where the two costs equal each other is called the breakeven point.

The advantage of the breakeven analysis is to determine when the new product or service will be more economical than the existing one.

for Performing a Breakeven Analysis

• Determine the costs for existing product, service, and so on.
• Determine the costs for the proposed product, service, and so on.
• Draw a graph to illustrate the relationship between the two, and identify the breakeven point.
  • Draw an x-axis to reflect the time continuum (e.g., months, quarters, years).
  • Draw a y-axis to reflect the cumulative costs.
• Draw a line reflecting the costs of the existing product, service, and so on, over time.
• Draw a line reflecting the costs of the proposed product, service, and so on, over time.
• Identify the point where the two lines intersect to determine the payback period.