This tool allows you to determine the break-even point (BEP) or break-even level, the minimum number of units a company must sell to cover total costs, consisting of both fixed and variable costs to the company.
The main purpose of break-even analysis is to determine the minimum output that must be exceeded for a business to profit.
Total profit at the break-even point is zero.
The BEP is calculated as follows:
- Total Costs = Total Revenue
- Price per unit x BEP = Total Fixed Costs + Variable Unit Cost x BEP
- (Price per unit – Variable Unit Cost) x BEP = Total Fixed Costs
- BEP = Total Fixed Costs / (Price per unit – Variable Unit Cost)
The quantity “Price per unit – Variable Unit Cost” is called the Unit Contribution Margin: it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs.
- Enter the company’s fixed costs or overhead: Business expenses that do not depend on the level of goods or services produced by the business.
- Enter the selling price per unit.
- Enter the variable cost per unit. Variable costs are expenses that fluctuate proportionally with the quantity of output.
- The BEP or break-even point will appear automatically below.
- You can get additional help by hovering over the symbol “?”
- References: Break-even point
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