Break-Even Point Calculator

Calculate the sales volume needed to cover all fixed and variable costs.

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What is Break-Even Point?

Break-Even Point is the sales volume at which total revenue equals total costs, resulting in neither profit nor loss.

Break-Even Point is calculated by dividing fixed costs by the contribution margin per unit (selling price minus variable cost per unit).

Understanding Break-Even Point helps businesses determine the minimum sales needed to avoid losses and plan pricing strategies effectively.

It’s a fundamental tool for financial planning, helping entrepreneurs assess business viability and set realistic sales targets.

Break-Even Analysis assumes that fixed costs remain constant and variable costs change proportionally with production volume.

The calculation provides valuable insights for decision-making, including pricing adjustments, cost control measures, and capacity planning.

While useful for planning, Break-Even Point doesn’t account for market demand limitations or competition effects on actual sales volumes.

Break-Even Point Formula

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Fixed Costs} &= \mathrm{FC}\newline\text{Variable Cost per Unit} &= \mathrm{VC}\newline\text{Selling Price per Unit} &= \mathrm{SP}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Break-Even Point} = \mathrm{BEP} \newline = \frac{\mathrm{FC}}{\mathrm{SP} - \mathrm{VC}}\end{gather*}

Break-Even Point Calculation Examples

Example 1

A small bakery has fixed costs of $50,000 per month, including rent, insurance, and salaries. Each cake costs $20/unit to produce (ingredients, packaging) and sells for $50/unit.

To determine how many cakes need to be sold to break even, we calculate:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Fixed Costs}\space(\mathrm{FC}) &= \mathrm{{\$}50{,}000}\newline\text{Variable Cost per Unit}\space(\mathrm{VC}) &= \mathrm{{\$}20/unit}\newline\text{Selling Price per Unit}\space(\mathrm{SP}) &= \mathrm{{\$}50/unit}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Break-Even Point}\space(\mathrm{BEP})\newline\begin{aligned}&= \frac{\mathrm{FC}}{\mathrm{SP} - \mathrm{VC}}\newline&= \frac{\mathrm{{\$}50{,}000}}{\mathrm{{\$}50/unit} - \mathrm{{\$}20/unit}}\newline&= \frac{\mathrm{{\$}50{,}000}}{\mathrm{{\$}30/unit}}\newline&= \mathrm{1{,}666.667~units}\end{aligned}\end{gather*}

The bakery needs to sell 1,666.667 units cakes per month to break even.

At this volume, total revenue (1,666.667 units × $50/unit = $83,333.333) equals total costs (fixed costs of $50,000 + variable costs of 1,666.667 units × $20/unit = $33,333.333).

Example 2

A manufacturing company has monthly fixed costs of $120,000 for facilities, equipment, and overhead. Each product costs $15/unit in materials and labor to produce and sells for $35/unit.

To find the break-even sales volume:

\begin{gather*}\bold{Given{:}}\newline\begin{aligned}\text{Fixed Costs}\space(\mathrm{FC}) &= \mathrm{{\$}120{,}000}\newline\text{Variable Cost per Unit}\space(\mathrm{VC}) &= \mathrm{{\$}15/unit}\newline\text{Selling Price per Unit}\space(\mathrm{SP}) &= \mathrm{{\$}35/unit}\end{aligned}\newline\bold{Calculate{:}}\newline\text{Break-Even Point}\space(\mathrm{BEP})\newline\begin{aligned}&= \frac{\mathrm{FC}}{\mathrm{SP} - \mathrm{VC}}\newline&= \frac{\mathrm{{\$}120{,}000}}{\mathrm{{\$}35/unit} - \mathrm{{\$}15/unit}}\newline&= \frac{\mathrm{{\$}120{,}000}}{\mathrm{{\$}20/unit}}\newline&= \mathrm{6{,}000~units}\end{aligned}\end{gather*}

The company must sell 6,000 units per month to break even.

Beyond this point, each additional unit sold contributes $20/unit toward profit, as variable costs are covered and fixed costs are already paid.

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