Break Even Pricing

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Break even pricing is a practice in accounting pricing where the price point at which a business’ offerings will earn zero profits on a sale i.e., cost is equal to revenue.
Break even pricing is a common accounting tool that is used by businesses to set a strategy for pricing for their product portfolio. It is calculated by the management of a company to make informed decisions if in case it wants to put a check on costs or increase production. The business can choose to set a price that is lower than the break even point. But, here, the business would be gaining revenues and would not be earning profits.
The main motive of businesses in this case is to increase its market share rather than increasing their profits earned. Mainly, ecommerce firms are operating with this method but they have been able to tap into the market share.
Break even pricing helps a company to set the lowest acceptable price and it is calculated by using the formula:
(Total fixed cost/ Volume of production unit) + Variable cost per unit
For example, a company manufacturing light bulbs incurs a fixed cost of Rs. 50,000 for manufacturing bulbs and variable cost per unit is Rs. 10. The company sets an annual target for annual sales and the break even point is calculated as 50,000/10,000 + 10 = Rs. 15. Therefore, the break even price for one bulb is Rs. 15 and the business may choose a price above this value so as to earn profits.

RCBS one of the best MBA Colleges in kerala located in kochi. Rajagiri Centre for Business Studies Kochi offers post graduation courses MBA, IMBA, MHRM, PGDM etc.Looking for the right institution to do your post-graduation, then RCBS top business schools in Kochi is the right choice for you.


To know more visit our website : https://rcbs.rajagiri.edu/


Location: Kerala, India

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