How does the production volume affect break-even analysis?

Since the break-even analysis depicts the relationship between production volume and relevant cost of production at that volume considering the alternative processes, it further helps the management decide which alternative to proceeding with regarding a certain production volume to minimize costs and maximize profits, i.e.,, achieve the optimal choice of production.

The break-even analysis determines the volume of production where the revenue generated from the sale of the product paybacks the total cost incurred with the production.

Determining the break-even point requires the evaluation of the volume that best covers the production costs by analyzing various volumes and the revenue associated with them. The volume of production where revenue can cover the costs is chosen. It helps determine the losses and profits regarding the volume sold.

Production above the break-even point generates profits and below the point generates losses. The revenue increases with the increase in production volume, and as more is produced, the revenue increases, which will change the break-even point. Hence it influences the break-even point.