Break Even Formula

Break Even Formula

Break even is a point, where organization is earning neither profit nor incurring any losses. This concept has fundamental importance for decision making. Break even point may be calculated by the following formula

Fixed Cost/ unit contribution

Where;

Unit contribution = unit Sale price – Unit Variable Cost

Example

Unit Sale Price = 60

Unit Variable Cost = 50

Fixed Cost = 50,000

What is break even point?

Solution

Unit contribution = 60-50

Unit contribution = 10

Required level     = Fixed Cost/unit Contribution

 =50,000/10

 =5,000 units