is the method used to determine the number of units a firm must sell at a specific price to cover all costs.

Breakeven analysis.

Explanation:

Breakeven analysis is the method used to determine the number of units a firm must sell at a specific price to cover all costs. It is a concept that allow business owners or financial experts to determine and know what they need to sell either on a monthly or annual (yearly) basis, in order to be able to cover the costs of doing the business.

Basically, it helps us to determine the amount of revenue required for the smooth operation of a business, amount of money needed to cover both fixed and variable costs. Using the breakeven analysis, production costs can be categorized as;

1.  Variable costs: these are costs that usually change with respect to changes in the level of production or output. Examples are direct labor, maintenance of equipment or machines, raw materials costs etc.

2.  Fixed costs: these are the costs which are not directly related to the level of production or not affected by the quantity of output in an organization. Examples are rent, depreciation, administrative cost, research and development costs, marketing costs etc.

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