## What is Break-Even Point?

The **Break-Even Point (BEP) **is the inflection point at which the revenue output of a company is equal to its total costs and starts to generate a profit.

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## How to Calculate Break-Even Point (BEP)

There is no net loss or gain at the break-even point (BEP), but the company is now operating at a profit from that point onward.

For all business owners, particularly during the earlier stages of a business, one of the most crucial questions to answer is: *“When will my business break even?”*

Businesses share the similar core objective of eventually becoming profitable in order to continue operating. Otherwise, the business will need to wind-down since the current business model is not sustainable.

An unprofitable business eventually runs out of cash on hand, and its operations can no longer be sustained (e.g., compensating employees, purchasing inventory, paying office rent on time).

By understanding the required output to break even, a company can set revenue targets accordingly, as well as adjust its business strategy such as the pricing of its products/services and how it chooses to allocate its capital.

The steps to calculate the break-even point are as follows:

- Step 1 ➝ Calculate Sum of Fixed Costs
- Step 2 ➝ Calculate Contribution Margin
- Step 3 ➝ Divide Fixed Costs by Contribution Margin

## Break-Even Point Formula

The formula for calculating the break-even point (BEP) involves taking the total fixed costs and dividing the amount by the contribution margin per unit.

**Break-Even Point (BEP) =**Fixed Costs

**÷**Contribution Margin

The contribution margin is the selling price per unit minus the variable costs per unit, and represents the amount of revenue remaining after meeting all the associated variable costs accumulated to generate that revenue.

**Contribution Margin = Fixed Costs**➝ If a company’s contribution margin (in dollar terms) is equal to its fixed costs, the company is at its break-even point.**Contribution Margin > Fixed Costs**➝ If the company’s contribution margin exceeds its fixed costs, then the company actually starts profiting from the sale of its products or services.

## How to Conduct Break-Even Analysis

If a company has reached its break-even point, the company is operating at neither a net loss nor a net gain (i.e. “broken even”).

The incremental revenue beyond the break-even point (BEP) contributes toward the accumulation of more profits for the company.

Conducting a break-even analysis is a prerequisite to setting prices appropriately, establishing clear and logical sales target goals, and identifying weaknesses in the current state of the business model that could benefit from improvements (e.g., sales tactics and marketing strategies).

Furthermore, established companies with a diverse portfolio of product/service offerings can estimate the break-even point on an individualized product-level basis to assess whether adding a certain product would be economically viable.

In effect, the insights derived from performing break-even analysis enables a company’s management team to set more concrete sales goals since a specific number to target was determined.

Realy appreciated

You’re welcome!

Well understand

How to find the BREAK EVEN POINT IN UNIT

IF THE GIVEN IS HERE

SALE – $1,100,000

TOTAL FIXED COST – 280,000

TOTAL VARIABLE COST – 660,000

UNIT PRICE – 40

WHAT IS THE BREAK EVEN POINT IN UNIT

Hi, Conan,

You would need 17,500 units to break even (1,100,000 / $40 = 27,500; 660,000 / 27,500 = $24 cost per unit; $40 – 24 = $16 profit per unit; 280,000 / $16 = 17,500 units to break even).

BB

what are the formulas for break-even variable cost and break-even fixed cost?

Hi, Hamish, Do you mean the $ value of breakeven, not the number of units? For breakeven variable costs, if fixed costs are truly fixed and the units are given, you would use: revenue per unit – fixed costs / units. Fixed cost breakeven if variable costs per unit and… Read more »

kindly would like to know how to calculate the break even points given the variable cost,fixed cost and the net profit only

Hi, Nicholas,

You would not be able to calculate the break-even quantity of units unless you have revenue and variable cost per unit.

Brad

May you please help me on this question. A company manufactures and sells a product for $20. The summarised income statement for year end is as follows: Sales $800 000 Direct Materials (120 000) Direct wages (160 000) Variable production O/H (80 000) Fixed production O/H (100 000) Fixed Administration O/H… Read more »

Hi, Greg, You need to add up the fixed expenses, and then divide that by the gross profit per unit (800K/20 for units) to get breakeven # of units. Then figure out how many more units need to be sold to get after-tax profit of $150K (divide that by 1… Read more »

Please help me calculate this A car has the following costs It makes 10 cars per week (figures in kshs) Rent-150000 per week Salaries -200000 per week Interest-50000 per week Materials -3000000 per car Wages-50000 per car Powers-25000 per car Sales commission -250000 per car If each car is sold… Read more »

Hi, Teresa,

If materials, wages, powers, and commission come to 625K total, and the cars are sold for 500K, then it seems like you are losing money on each car.

BB

If i have

Total units to be produced =

12000Cost per unit =

$37.40Unit selling price =

$53.98Total Fixed Cost $35038BEP = ?

How do i solve this problem?

What is the contribution Margin

Hi, Hussein,

Take the fixed costs and divide by the difference between the selling price and cost per unit ($16.58), and that will tell you how many units have to be sold to break even.

BB

Hi Hussein

Only 2,189.8 units are needed to break even

Hi, Chuol,

Thanks for offering an answer. But how do you arrive at 2189.8, when fixed costs are $35,038 and the difference between selling price and cost per unit is $16.58?

BB

What is break even point sales determine algebrically and graphically

Hi, Sarwar, I suppose if you wanted to graph it, you would put $ on the y axis and units sold on the x axis, and label the amount of fixed costs on the y axis, then the number of units sold * the income per unit would represent a… Read more »

if i have

Total units to be produced =

4,500Cost per unit =

$12.40Unit selling price =

$21.98Total Costs = $

BEP =

how do i solve this problem

Hi, Ivana,

To calculate BEP, you also need the amount of fixed costs that needs to be covered by the break-even units sold.

BB

No, need fixed cost

Hi, Alihamza,

Are you saying that Ivana does not need fixed costs, or that she does? The latter is true, she must have fixed costs to calculate break even.

BB

How can we quickly construct the sensitivity table in Column G and Column H?

Hi, Angel,

You could do a one-way data table, where you reference net income (E11) as the output variable in H3, and then you specify E5 as the column input (highlighting G3:H15 as your table).

BB

is it possible to use the “average” cost per unit in the BEP formula?

Hi, Erwin,

Yes, you would want to use the average cost per unit along with the average selling price to get the contribution margin per unit in the formula.

BB

How to find higher or lower bep

Hi, Lozita, I am not sure what you mean asking how to find higher or lower BEP. The point of this is to find out how many units must be sold to breakeven, and that is based on the gross profit of each unit sold and the amount of fixed… Read more »

Profit when sale are 40000

Fixed exp 8000

BEP 20000

Hi, Shadab,

What we mean here by BEP is the number of units that must be sold to just cover fixed costs so you would need to specify the revenue and variable costs per unit in order to know the BEP for fixed costs of 8000.

BB

fixed costs are costs required to cover the regular monthly expense. this means it does not include costs of machinery,land building,licence

Hi, Gabeini,

What we mean here by fixed costs are costs that are constant regardless of production volume, so we cannot arbitrarily declare that they only mean ‘regular monthly expenses’ and do not include those other line items, in case those items are constant regardless of volume.

BB

what are the formulas of BEP

Hi, Abraham, Do you mean the $ value of breakeven? For breakeven variable costs, if fixed costs are truly fixed and the units are given, you would use: revenue per unit – fixed costs / units. Fixed cost breakeven if variable costs per unit and units are given would be:… Read more »