The goal of break-even analysis is to determine the amount of product sales, necessary within a defined period in order for the revenues to cover the costs. The point of intersection of profits and costs is called the break-even point. In the basic model for break-even analysis, the costs or total costs are differentiated into variable costs and fixed costs. In contrast to variable costs, fixed costs are independent of production volume.
Break-even analysis is mostly viewed with the help of a graphic representation (profit and cost function). The point of intersection of the two functions signifies the break-even point. If the amount of sales that may be attained lies above the intersection point, there will be a profit. If the amount of sales lies below this point, a loss will result.