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Calculate the break-even point in units and revenue. Analyze profit or loss at any sales volume with contribution margin and cost breakdown.
The break-even point is the sales volume at which total revenue equals total costs, resulting in zero profit or loss. It tells a business the minimum units it must sell to cover all fixed and variable expenses.
Rent, salaries, insurance, equipment, etc.
A business has $10,000 in fixed costs, sells products at $50 each, with $30 variable cost per unit.
Selling 600 units: Revenue $30,000 − Variable $18,000 − Fixed $10,000 = $2,000 profit
Formula
Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost)Fixed Costs = costs that do not change with production volume (rent, salaries)
Selling Price = revenue received per unit sold
Variable Cost = cost incurred per unit produced (materials, direct labor)
Contribution Margin = Selling Price − Variable Cost per unit
Worked Example
$10,000 fixed costs, $50 price, $30 variable cost
Did you know? The break-even concept was popularized in cost accounting by Walter Rautenstrauch in 1930 and is now a fundamental tool in financial management taught in every business school worldwide.
Sources
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