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Break Even Price Calculation Excel

Reviewed by Calculator Editorial Team

Understanding break even price is crucial for businesses to determine the point at which total revenue equals total costs. This guide explains how to calculate break even price, how to perform the calculation in Excel, and provides an interactive calculator to help you find the break even price for your products or services.

What is Break Even Price?

The break even price is the price at which a business neither makes a profit nor incurs a loss. At this price point, total revenue equals total costs. Understanding break even price helps businesses set competitive prices, manage costs, and make informed financial decisions.

Calculating break even price involves determining the fixed costs, variable costs, and selling price. Fixed costs are expenses that do not change with production volume, such as rent and salaries. Variable costs are expenses that vary with production volume, such as materials and labor.

How to Calculate Break Even Price

To calculate break even price, follow these steps:

  1. Determine your total fixed costs.
  2. Determine your variable cost per unit.
  3. Calculate the contribution margin per unit (selling price per unit minus variable cost per unit).
  4. Divide the total fixed costs by the contribution margin per unit to find the break even quantity.
  5. Multiply the break even quantity by the selling price per unit to find the break even price.

This process helps you understand how many units you need to sell to cover your costs and reach the break even point.

Break Even Price Formula

Break Even Price Formula

The break even price can be calculated using the following formula:

Break Even Price = (Total Fixed Costs + (Break Even Quantity × Variable Cost per Unit)) / Break Even Quantity

Where:

  • Total Fixed Costs - Fixed expenses that do not change with production volume.
  • Variable Cost per Unit - Costs that vary with each unit produced.
  • Break Even Quantity - The number of units needed to cover fixed costs.

This formula helps you determine the price at which your business will cover all costs and start making a profit.

Excel Break Even Calculation

Calculating break even price in Excel is straightforward. Follow these steps to create a break even price calculator in Excel:

  1. Open a new Excel workbook and enter your data in cells.
  2. In cell A1, enter "Total Fixed Costs".
  3. In cell B1, enter the total fixed costs value.
  4. In cell A2, enter "Variable Cost per Unit".
  5. In cell B2, enter the variable cost per unit value.
  6. In cell A3, enter "Selling Price per Unit".
  7. In cell B3, enter the selling price per unit value.
  8. In cell A4, enter "Break Even Quantity".
  9. In cell B4, use the formula =B1/(B3-B2) to calculate the break even quantity.
  10. In cell A5, enter "Break Even Price".
  11. In cell B5, use the formula =B3 to display the break even price.

This Excel setup allows you to quickly calculate the break even price by entering your values and using the provided formulas.

Example Calculation

Let's consider an example to illustrate how to calculate break even price:

Scenario:

  • Total Fixed Costs: $10,000
  • Variable Cost per Unit: $5
  • Selling Price per Unit: $10

Calculation:

  1. Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit = $10 - $5 = $5
  2. Break Even Quantity = Total Fixed Costs / Contribution Margin per Unit = $10,000 / $5 = 2,000 units
  3. Break Even Price = Selling Price per Unit = $10

In this example, the break even price is $10, and you need to sell 2,000 units to cover your fixed costs.

FAQ

What is the difference between break even point and break even price?

The break even point refers to the number of units you need to sell to cover your costs, while the break even price is the price at which you will cover your costs. The break even point is calculated in terms of quantity, while the break even price is calculated in terms of price per unit.

How does break even price affect pricing strategy?

Break even price helps businesses set competitive prices that cover costs. It allows businesses to determine the minimum price needed to cover fixed and variable costs, helping them make informed pricing decisions.

Can break even price be negative?

No, break even price cannot be negative. It represents the price at which total revenue equals total costs, and it is calculated based on positive values for fixed costs, variable costs, and selling price.