Explain the idea of breakeven point in words by using the concept of contribution and fixed costs.?

Answer 1

Break even is the point of no profit or loss. Your cost will be the actual cost to produce plus that unit's share of the overhead cost. For example if you have a shop with 3 workers you are paying for 2,080 hours a year each and have rent and utilities for the year along with other cost like liability insurance you might be paying the worker $10 an hour but charging $20 to break even. If you laid off one worker because you were short of work you wouldn't save the cost of the rent but now would have more overhead per hour for the remaining workers.
If you hired 3 more workers it would cost you more for payroll, payroll taxes and vacation and medical insurance. So you might be able to sell their time cheaper to breakeven.
Having someone work an hour overtime would only cost you $15 since that is the fixed cost but wouldn't absorb any overhead.