What is Break-even Analysis?

Breakeven analysis is the study of the relationship between selling prices, sales volumes, fixed costs, variable costs and profits at various levels of activity. It is also known as cost-volume-profit analysis. Breakeven analysis is simply a technique for determining whether what you sell will make any money or not. It is often requested in business plans. Its form is quite simple. 

If you assume that you can price your product at P, the fixed costs are FC, and the variable costs to produce the product is VC, then you can calculate the quantity of the product you need to sell just to breakeven (that means you just cover your costs and don't make any more money) as:

Breakeven number of units = FC/ (P-VC)

So, if the price of the product is $5, the variable costs to produce it is $3 and the fixed costs are $1000, then the breakeven number of units is = 1000/(5-3)=500 units.