How to Calculate the Break-Even Point
To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.To get more news about
breakeven point (bep), you can visit wikifx.com official website.
What Is the Break-Even Point?
The break-even point is the point where a company’s revenues equals its costs. The calculation for the break-even point can be done one of two ways; one is to determine the amount of units that need to be sold, or the second is the amount of sales, in dollars, that need to happen.
The break-even point allows a company to know when it, or one of its products, will start to be profitable. If a business’s revenue is below the break-even point, then the company is operating at a loss. If it’s above, then it’s operating at a profit.
How to Calculate Break Even Point in Units
Fixed Costs - Fixed costs are ones that typically do not change, or change only slightly. Examples of fixed costs for a business are monthly utility expenses and rent.
Sales Price per Unit- This is how much a company is going to charge consumers for just one of the products that the calculation is being done for.
Variable Costs per Unit- Variable costs are costs directly tied to the production of a product, like labor hired to make that product, or materials used. Variable costs often fluctuate, and are typically a company’s largest expense.
Break-Even Point Examples
Let’s show a couple of examples of how to calculate the break-even point.
Sam’s Sodas is a soft drink manufacturer in the Seattle area. He is considering introducing a new soft drink, called Sam’s Silly Soda. He wants to know what kind of impact this new drink will have on the company’s finances. So, he decides to calculate the break-even point, so that he and his management team can determine whether this new product will be worth the investment.
Break-Even Point Examples
Let’s show a couple of examples of how to calculate the break-even point.
Sam’s Sodas is a soft drink manufacturer in the Seattle area. He is considering introducing a new soft drink, called Sam’s Silly Soda. He wants to know what kind of impact this new drink will have on the company’s finances. So, he decides to calculate the break-even point, so that he and his management team can determine whether this new product will be worth the investment.
Calculating The Break-Even Point in Sales Dollars
Fixed Costs ÷ Contribution Margin (Sales price per unit – Variable costs per unit, with resulting figure then divided by sales price per unit)
This means Sam’s team needs to sell $2727 worth of Sam’s Silly Soda in that month, to break even. Anything after that amount, will be profit for the company.
To confirm this figure: you can take the 1818 units from the first calculation, and multiply that by the $1.50 sales price, to get the $2727 amount.
How to Calculate the Break-Even Point
