Bookkeeping
Break-Even Analysis: Formula and Calculation

If you are a new business then a break-even analysis can enable you to get the funding you need. This can work for businesses that are already running for a few years too. Break-even point analysis ratio analysis objectives advantages and limitations prepares you and shows you if you might need to take debt in the future. In the other states, the program is sponsored by Community Federal Savings Bank, to which we’re a service provider.

  1. It’s very important to ensure that all costs are taken into account, both fixed and variable.
  2. The break-even point is equal to the total fixed costs divided by the difference between the unit price and variable costs.
  3. After unit variable costs are deducted from the price, whatever is left—​​​the contribution margin—​is available to pay the company’s fixed costs.
  4. To demonstrate the combination of both a profit and the after-tax effects and subsequent calculations, let’s return to the Hicks Manufacturing example.

How to Calculate the Break-Even Point for Sales in Units?

Determine sales price per unitSales price per unit refers to the price customers pay for a single unit of your product or service. If you plan to do a sales dollar break even analysis, make sure you also have the contribution margin calculated. Simply enter your fixed and variable costs, the selling price per unit and the number of units expected to be sold. To demonstrate the combination of both a profit and https://www.bookkeeping-reviews.com/ the after-tax effects and subsequent calculations, let’s return to the Hicks Manufacturing example. Let’s assume that we want to calculate the target volume in units and revenue that Hicks must sell to generate an after-tax return of $24,000, assuming the same fixed costs of $18,000. The break-even price is mathematically the amount of monetary receipts that equal the amount of monetary contributions.

Example: Break-Even Price for an Options Contract

Shape Calculators