![]() ![]() There are some issues to be aware of before relying upon the break even sales concept. This means that the business reaches a break even sales level at $200,000 of sales per month. The formula for break-even point (BEP) is very simple and calculation for the same is done by dividing the total fixed costs of production by the contribution margin per unit of product manufactured. The company's contribution margin is 50%. The formula is:įixed expenses ÷ Contribution margin percentage = Break even sales Example of the Break Even Sales CalculationĪBC International routinely incurs $100,000 of fixed expenses in each month. The break-even point expressed in dollars of revenues is calculated. In other words, the break-even point will result in a net income of 0 on an income statement prepared using the accrual method of accounting. Q F / (P V), or Break Even Point (Q) Fixed Cost / (Unit Price Variable Unit Cost) Where: Q is the break even quantity, F is the total fixed costs, P is the selling price per unit, V is the variable cost per unit. ![]() Contribution margin is sales minus all variable expenses, expressed as a percentage. The break-even point is the amount of sales required to cover a companys costs and expenses that are reported on its income statement. To calculate break even sales, divide all fixed expenses by the average contribution margin percentage. For example, if a business downturn is expected, the break even level can be used to pare back fixed expenses to match the expected future sales level. It is useful to know the break even sales level, so that management has a baseline for the minimum amount of sales that must be generated in each reporting period to avoid incurring losses. This sales amount exactly covers the underlying fixed expenses of a business, plus all of the variable expenses associated with the sales. Break even sales is the dollar amount of revenue at which a business earns a profit of zero. ![]()
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