How to Calculate the Break Even Point

by Greg DePersio

0 min read

A business’ break-even point is the point where revenues exactly equal expenses. It is critical to know this figure because it shows how much sales are needed to simply keep the business alive. The break-even point is calculated using three variables:

*Fixed costs – these are costs independent of sales volume, such as rent or salaries.*Variable costs – these costs fluctuate with sales volume, such as raw materials for products.*Sales price of the product

The formula is:

Break-even point in units = fixed costs / (price – variable cost)

For example, assume a company has $15,000 fixed costs for the month, sells a widget for $25, and each widget costs $5 to manufacture. The break-even point in units for the month is:

$15,000 / ($25 – $5) = $15,000 / $20 = 750 units

The company will be profitable for the month once the 751st unit is sold.

References & Resources

Related Articles

Internal Reporting Options: Variable Pricing Versus Absorption Costing

Materials, labor, and overhead are combined to make products to sell. The…

Read more

Understanding Cost Behavior Classifications

All expenses of an organization can be classified as variable costs, fixed…

Read more

The Complete Guide to Logistics for Wholesale Suppliers

Being a wholesale supplier comes with a unique set of challenges. Fortunately,…

Read more