Definition of Shutdown point:
At this point, there is no financial benefit in continuous production. If there is an additional loss, whether due to an increase in variable costs or a reduction in revenue, then operating costs will exceed revenue. At this point, it is easier to continue the operation, even if other areas of the company continue to incur losses, such as fixed costs. When the opposite happens, the extra product is more comfortable.
The level of production at which total revenue is equal to the total variable cost and product prices are equal to the average variable cost.
A breakpoint is an operational level at which the company does not take advantage of continuous operations and therefore decides to close temporarily (or in some cases permanently). It is the result of a combination of production and price that provides the business with enough revenue to cover all its variable costs. Defined interval refers to the exact point of time when the company's (margin) revenue matches the variable (margin) cost. In other words, it happens when the margin utility becomes negative.
How to use Shutdown point in a sentence?
- The interval is the level of action for which the company does not benefit from continuing the work and, therefore, decides to close temporarily (or in some cases, permanently).
- The indication comes from the combination of production point and price at which the company earns enough to cover all its variable expenses.
- Breakpoints determine exactly how much the small costs associated with the operation outweigh the revenue from the operation.
Meaning of Shutdown point & Shutdown point Definition