Linear break even analysis is a tool used by businesses to determine the point at which their operations will start to generate a profit. It is based on the concept of the break even point, which is the point at which the revenue generated by a business is equal to its expenses.

To perform a linear break even analysis, a business first needs to identify its fixed costs and variable costs. Fixed costs are expenses that do not change with the level of production, such as rent, salaries, and insurance. Variable costs, on the other hand, are expenses that do change with the level of production, such as materials and labor.

Once the fixed and variable costs have been identified, the business can calculate its total cost at each level of production by adding the fixed costs to the variable costs. For example, if a business has fixed costs of $10,000 per month and variable costs of $5 per unit produced, the total cost at a production level of 1,000 units would be $10,000 + (1,000 * $5) = $15,000.

Next, the business can determine its selling price by calculating the total cost at each production level and adding a desired profit margin. For example, if the business wants to make a profit of $2 per unit, the selling price at a production level of 1,000 units would be $15,000 + (1,000 * $2) = $17,000.

Finally, the business can use this information to determine the break even point by dividing the fixed costs by the difference between the selling price and the variable cost per unit. In the example above, the break even point would be $10,000 / ($17 - $5) = 666 units. This means that the business would need to produce and sell 666 units in order to start making a profit.

Linear break even analysis is a useful tool for businesses because it helps them to understand the relationship between their costs and their revenue. By understanding this relationship, businesses can make informed decisions about their pricing and production levels in order to maximize their profits.