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It helps to decide the price of a product.There are multiple uses of the Break Even Analysis formula they are as follows:. Therefore, the company needs to sell at least 250,000 widgets from the new unit in order to break even. Determine the break-even point of the company’s new unit if the selling price of each widget is expected to be $1.20.īreak Even Point is calculated using the formula given belowīreak Even Point = Total Fixed Costs / (Selling Price per Unit – Variable Cost per Unit) On the other hand, the variable cost per unit is expected to be $0.80, which primarily consists of the cost of raw material and direct labor expenses. The company is in the process of setting up a new unit where it has a budgeted annual fixed cost of $100,000. Let us take the example of a widget manufacturing company to illustrate the concept of break-even analysis. of Units to Produce the Desired Profit = 6,000 of Units to Produce the Desired Profit = + 1,000 Number of Units to Produce the Desired Profit = (Desired Profit in Dollars / Sales Price per Unit – Variable Cost per Unit )+ Break Even points of Unit of Units to Produce the Desired Profit is calculated using the formula given below Then, calculate the Number of Units to Produce Desired Profit Break Even Point in Dollars = 300 * 1000.Then, calculate Break Even Point in Dollarsīreak Even Point in dollars is calculated using the formula given belowīreak Even Point in Dollars = Sales Price per Unit * Break Even points in Units. Break Even Point in Units = 100,000 / 100.Break Even Analysis Formula- Example #5Ī factory wants to study Break Even point and want to generate a profit of $500,000, the total fixed cost of a product is $100,000, the variable cost per unit $200, sales price per unit is $300.īreak Even Point in Units is calculated using the formula given belowīreak Even Point in Units = Fixed Cost / Sales Price per Unit – Variable Cost per Unit Through this, one can compute the profit or loss of the company. The difference between total revenue and the total cost is profit or loss. So, 3000 units are required to produce to get the desired profit.īreak Even point is a point where the total cost of a product or service is equal to total revenue.

of Units to Produce the Desired Profit = 3,000 of Units to Produce the Desired Profit = (100,000 / 200) + 2500 Number of Units to Produce the Desired Profit = (Desired Profit in Dollars / Contribution Margin Per Unit )+ Break Even points of Unit of Units to Produce the Desired Profit is calculated using the formula given below. Now, let us calculate no of a unit to produce the desired profit. The desired profit against sales of the product is $100,000, the contribution margin per unit of product is $200, and the value of Break Even point unit is 2,500. The spreadsheet will plot break-even for each level of sales and product price, and it will create a graph showing you break-even for each of these prices and sales volumes.Number of Units to Produce the Desired Profit = (Desired Profit in Dollars / Contribution Margin Per Unit )+ Break Even points of Unit Break Even Analysis Formula- Example #4 Create a spreadsheet: To do a break-even calculation, you will construct or use a spreadsheet then turn the spreadsheet into a graph.Determine sales volume and unit price: The break-even point will change as the sales volume for this product and the unit price change.This price may change as you see where your break-even point is. Determine unit selling price: Determine the unit selling price for your product.Don't forget the cost to design the product and packaging, make the prototype, and maybe patent your product. These costs would include rent or mortgage, utilities, insurance, salaries of non-production employees, and all other costs. To determine fixed costs, add up the cost of running your factory for one month. Determine fixed costs: Fixed costs are costs to keep your business operating, even if you didn't produce any products.For example, if you are printing books, your variable unit costs are paper, binding, and glue for one book, and the cost to put one book together. If you are making a product, you will need to know the cost of all the components that go into that product. Variable costs are those costs associated with making the product or buying it wholesale. Determine variable unit costs: Determine the variable costs of producing one unit of this product.