Break-Even Calculator

About Break-Even Calculator

Calculate break-even point for a business. This calculator provides instant results with step-by-step explanations to help you understand the calculation process.

Formula

How to use this calculator

1. Enter your fixed costs, which are costs that do not change with output, such as rent or insurance.
2. Enter your selling price per unit and your variable cost per unit.
3. Choose whether you want the break-even point in units or in sales revenue.
4. Use the result to compare against your sales goal and estimate your margin of safety.

The formula explained

The calculator uses the break-even formulas, \( \text{Break-even units} = \frac{\text{Fixed costs}}{\text{Selling price per unit} - \text{Variable cost per unit}} \), and \( \text{Break-even revenue} = \text{Break-even units} \times \text{Selling price per unit} \). These formulas tell you how many units, or how much revenue, you need to cover all costs exactly.

• F = fixed costs, the costs that stay the same no matter how many units you sell
• P = selling price per unit, the amount you charge for one unit
• V = variable cost per unit, the cost to make or buy one unit
• B = break-even units, the number of units needed to reach zero profit
• R = break-even revenue, the sales revenue needed to reach zero profit

Step by step method

1. Find the contribution margin per unit by subtracting variable cost per unit from selling price per unit, \( P - V \).
2. Divide fixed costs by the contribution margin per unit to get break-even units, \( B = \frac{F}{P - V} \).
3. If needed, multiply break-even units by selling price per unit to get break-even revenue, \( R = B \times P \).

Worked example

Problem. A company has fixed costs of \( \$12{,}000 \), sells each product for \( \$50 \), and has a variable cost of \( \$30 \) per unit. Find the break-even point in units and revenue.

1. First find the contribution margin per unit, \( 50 - 30 = 20 \).
2. Now divide fixed costs by the contribution margin, \( \frac{12{,}000}{20} = 600 \), so the break-even point is \( 600 \) units.
3. Multiply by the selling price to find break-even revenue, \( 600 \times 50 = 30{,}000 \).

Tips and common mistakes

• Make sure the selling price per unit is greater than the variable cost per unit, because otherwise the formula will not work correctly.
• Remember that break-even means zero profit, not a target profit. If you want a profit goal, you need to add that amount to the fixed costs before calculating.

Frequently asked questions