Break Even Characteristics

Break Even Characteristics

Break even is point, where organization operates at no profit any loss. It means that it is a point, where organization covers its fixed costs. There are two basic assumption break even analyses i.e. fixed cost does not change, sale and unit variable price does not change.

1.    Fixed Cost is same

2.    Unit Variable cost will remain same

3.    Unit sale price will remain same

Break Even Formula

Fixed Cost/ unit contribution

Where;

Unit contribution = unit Sale price – Unit Variable Cost

Break Even Formula Example

Sale Price = 40

Variable Cost = 20

Fixed Cost = 80,000

What is break even point?

Solution

Unit contribution = 40-20

Unit contribution = 20

Required level     = Fixed Cost/unit Contribution

 =80,000/20

 =4,000 units