Calculating Break Even When will you be independent?

Finding Breakeven Units and Revenue Break-even analysis involves finding the level of sales necessary to operate a business on a break-even basis. At break-even, total costs equal total revenue, i.e., you don't make any money, but you don't lose any money either. If you produce more units than at the break- even level, you will be generating a profit. Conversely, if you produce less than the break-even level, you will be losing money. Break-even analysis involves finding the level of sales necessary to operate a business on a break-even basis. At break-even, total costs equal total revenue, i.e., you don't make any money, but you don't lose any money either. If you produce more units than at the break- even level, you will be generating a profit. Conversely, if you produce less than the break-even level, you will be losing money.

Typical terms used in break-even analysis Selling Price (SP): This is the price that each unit will sell or retail for. The SP is generally expressed as revenue in dollars per unit. Variable Costs (VC): These consist of costs directly associated with sales. can include direct material and labour costs, the variable part of manufacturing overhead, and transportation and sales commission expenses. The VC is usually expressed as a cost in dollars per unit. Selling Price (SP): This is the price that each unit will sell or retail for. The SP is generally expressed as revenue in dollars per unit. Variable Costs (VC): These consist of costs directly associated with sales. can include direct material and labour costs, the variable part of manufacturing overhead, and transportation and sales commission expenses. The VC is usually expressed as a cost in dollars per unit.

Fixed Costs (FC): These costs remain constant (or nearly so) within the projected range of sales levels. can include facilities costs, certain general and administrative costs, and interest and depreciation expenses. Units (X): The unit is another way to say number of items sold or produced. For the purpose of a break-even calculation, it is assumed that the number of units produced during a period is equal to the number of units sold during the same period. Fixed Costs (FC): These costs remain constant (or nearly so) within the projected range of sales levels. can include facilities costs, certain general and administrative costs, and interest and depreciation expenses. Units (X): The unit is another way to say number of items sold or produced. For the purpose of a break-even calculation, it is assumed that the number of units produced during a period is equal to the number of units sold during the same period. Typical terms used in break-even analysis

Calculating Break-even Number of Units The following steps are involved in calculating the break- even point for a business. Remember, at break-even the total sales revenue is equal to total costs (fixed and variable). 1. Determine the variables: FC, SP, and VC. 2. Calculate the number of units produced or sold at break- even. SP(X) = VC(X) + FC Rearranging the formula to solve for X, the number of units at break-even will give you: X = FC / (SP - VC) The following steps are involved in calculating the break- even point for a business. Remember, at break-even the total sales revenue is equal to total costs (fixed and variable). 1. Determine the variables: FC, SP, and VC. 2. Calculate the number of units produced or sold at break- even. SP(X) = VC(X) + FC Rearranging the formula to solve for X, the number of units at break-even will give you: X = FC / (SP - VC)

3. Calculate the break-even revenue in dollars as follows: Break-even revenue ($) = (Break-even units) x (Selling Price) Calculating Break-even Revenue

FOR EXAMPLE Let's say you manufacture widgets. Each unit retails at $5. It costs you $2 to make each one, and the fixed costs for the period are $750. What is the break-even point in units and in sales revenue? SP = $5.00 VC = $2.00 FC = $ FOR EXAMPLE Let's say you manufacture widgets. Each unit retails at $5. It costs you $2 to make each one, and the fixed costs for the period are $750. What is the break-even point in units and in sales revenue? SP = $5.00 VC = $2.00 FC = $ Calculating Break-even Revenue

Break-even units X = FC / (SP - VC) = $750 / ($5 - $2) = $750 / $3 = 250 units Break even sales revenue = break-even units x SP = 250 x $5 = $1,250 Break-even units X = FC / (SP - VC) = $750 / ($5 - $2) = $750 / $3 = 250 units Break even sales revenue = break-even units x SP = 250 x $5 = $1,250

Calculating Break-even In other words, you would have to manufacture 250 widgets to break-even, which results in a revenue of $1,250.