Break-Even Point is the level of sales at which total revenue equals total costs, resulting in neither profit nor loss.
How It Works:
- Fixed costs (rent, salaries) are identified.
- Variable costs per unit are calculated.
- Selling price per unit is determined.
- Break-even point is calculated using:
- Break-Even Point (units)
- =
- Fixed Costs
- Selling Price per Unit
- −
- Variable Cost per Unit
- Break-Even Point (units)=
- Selling Price per Unit−Variable Cost per Unit
- Fixed Costs
-
- This tells how many units must be sold to cover all costs.
Benefits:
- Helps in pricing decisions
- Assists in cost control and planning
- Indicates minimum performance targets
- Useful for new business feasibility analysis
Example:
A business has fixed costs of ₹1,00,000, selling price per unit of ₹500, and variable cost of ₹300.