Breakeven point is a relationship that exists in both cost and financial accounting. With financial accounting, the breakeven point takes the gross margin percentage to determine the volume of sales necessary to offset total fixed costs which are customarily called ‘Overhead’ expenses. With cost accounting, the breakeven point is the number of units needed from production to cover the fixed costs of operations.
The difference between the sales price and the cost of the product or service rendered is known as gross profit margin in business. It is traditionally the amount identified on the income statement or a tax return as the amount earned after cost of sales a.k.a cost of goods sold, cost of services rendered, etc. is subtracted from sales (revenue).
Breakeven analysis is a managerial (cost) accounting tool used to examine the relationship of price to cost of a product. It also considers various sales volumes and the effect on profit given the different relationships of price to cost. The breakeven analysis is an essential tool in maximizing profit with the least amount of resources.
