Calculate The Company's Break Even Point in Unit Sales

What is the Break Even Point?

The break even point is the sales level at which a company's total revenue equals its total costs. At this point, the company neither makes a profit nor incurs a loss. Understanding this concept is crucial for financial planning and business strategy.

For many businesses, especially those in manufacturing or retail, knowing the break even point helps in setting realistic sales targets and pricing strategies. It provides a benchmark for financial health and operational efficiency.

Break Even Formula

The break even point in unit sales can be calculated using the following formula:

Where:

• Total Fixed Costs - These are costs that do not change with the level of production or sales, such as rent, salaries, and insurance.
• Selling Price per Unit - The price at which each unit is sold to customers.
• Variable Cost per Unit - These are costs that vary directly with the level of production or sales, such as materials and labor.

This formula helps businesses determine the minimum number of units they need to sell to cover all costs and start making a profit.

How to Calculate Break Even Point

Calculating the break even point involves several steps:

1. Identify all fixed costs for your business.
2. Determine the selling price per unit.
3. Calculate the variable cost per unit.
4. Apply the break even formula to find the number of units needed.

Using our calculator, you can input these values and get an instant result. The calculator also provides a visual representation of the break even point using a chart.

Worked Example

Let's consider a company with the following details:

• Total Fixed Costs: $50,000
• Selling Price per Unit: $100
• Variable Cost per Unit: $60

Using the formula:

This means the company needs to sell 1,250 units to cover all costs and start making a profit.