Question

In a cost volume profit analysis, what happens at the break even point and why companies do not want to remain at the break even point?

Answer 1

The break-even point in is the point at which total cost and total revenue are equal, i.e. "even". There is no net loss or gain.

In other words, break-even analysis is a simple tool defining the lowest quantity of sales which will include both variable and fixed costs. Moreover, such analysis facilitates the companies with a quantity which can be used to evaluate the future demand. If, in case, the break-even point lies above the estimated demand, reflecting a loss on the product, the companies can use this info for taking various decisions. It might choose to discontinue the product, or improve the advertising strategies, or even re-price the product to increase demand.

So, Break even point is a no profit no loss point, therefore companeis always want to remain above the break even point.