Break-even Analysis

What is Break-even Analysis?

Break-even analysis is a financial tool used by businesses to determine the point at which their revenue equals their expenses, resulting in neither profit nor loss. It helps businesses make informed decisions regarding pricing, production volume, and sales targets. By analyzing fixed costs, variable costs, and selling price per unit, break-even analysis provides valuable insights into a company's financial health and profitability.

What are the types of Break-even Analysis?

There are three main types of break-even analysis:

Simple Break-even Analysis: This type considers only one product or service and calculates the break-even point based on its fixed and variable costs.
Break-even Analysis with Multiple Products: In this type, businesses with multiple products or services determine their overall break-even point by incorporating the sales mix and contribution margin of each product.
Break-even Analysis with Multiple Revenue Streams: For companies with different revenue streams, such as sales, subscriptions, and advertisements, this type analyzes the break-even point by considering the contribution margin of each revenue stream.

How to complete Break-even Analysis

To complete a break-even analysis, follow these steps:

01
Identify fixed costs: Determine the costs that remain constant regardless of production or sales volume, such as rent, salaries, and insurance.
02
Calculate variable costs: Determine the costs that change based on production volume, such as raw materials, direct labor, and sales commissions.
03
Determine selling price per unit: Set the price at which each unit of product or service will be sold.
04
Calculate the contribution margin per unit: Subtract variable costs from the selling price per unit.
05
Calculate the break-even point: Divide the total fixed costs by the contribution margin per unit to determine the number of units that need to be sold to break even.
06
Analyze profitability: Compare the break-even point with projected sales volume to assess profitability and make informed business decisions.

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Video Tutorial How to Fill Out Break-even Analysis

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Questions & answers

Break-Even Point Formula in Excel You can calculate the break-even point with regard to two things: Monetary equivalent: (revenue*fixed costs) / (revenue - variable costs). Natural units: fixed cost / (price - average variable costs).
Break-Even Analysis is a ready-to-use template in Excel, Google Sheets, OpenOffice, and Apple Numbers to calculate financial feasibility for launching a new product or starting new ventures. The formulas for calculating the break-even point are relatively simple.
This type of analysis involves a calculation of the break-even point (BEP). The break-even point is calculated by dividing the total fixed costs of production by the price per individual unit less the variable costs of production. Fixed costs are costs that remain the same regardless of how many units are sold.
Calculate Break-Even analysis in Excel with formula Type the formula = B6/B2+B4 into Cell B1 to calculating the Unit Price, Type the formula = B1*B2 into Cell B3 to calculate the revenue, Type the formula = B2*B4 into Cell B5 to calculate variable costs.
How to calculate your break-even point When determining a break-even point based on sales dollars: Divide the fixed costs by the contribution margin. Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin. Contribution Margin = Price of Product – Variable Costs.
How to calculate your break-even point When determining a break-even point based on sales dollars: Divide the fixed costs by the contribution margin. Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin. Contribution Margin = Price of Product – Variable Costs.