Break-even point (BEP) is the point where total costs equal total revenue. Break-even analysis focuses on finding the margin of safety, which indicates how much revenues exceed costs. This involves determining how much revenues exceed fixed costs and variable costs. The break-even point in units can be found using the formula:
$$BEP_{units}=\frac{F}{P_{i}-V_{i}}$$
F— fixed costs;
Pi— selling price per unit of product or service;
Vi— variable cost per unit.
Since the denominator of the above formula essentially represents the contribution margin per unit, the formula can also be expressed as:
$$BEP_{units}=\frac{F}{CM_{i}}$$
FC— fixed costs;
CMi— contribution margin per unit.
The break-even point in monetary terms can be expressed with the following formula:
$$BEP_{euros}=P_{i}\times BEP_{units}$$
Pi— selling price per unit of product or service.
This indicates the necessary revenue level to reach profitability. The required sales volume to achieve the desired profit can be further determined using the formula:
$$Q_{EP}=\frac{EP}{CM_{i}+BEP_{units}}$$
EP— expected profit;
CMi— contribution margin per unit.
Break-even Point FAQ
What is the break-even point?
The break-even point is the sales level where total revenue equals total costs.
How do you calculate the break-even point in units?
Use fixed costs divided by selling price per unit minus variable cost per unit.
