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To calculate break-even point based on units: Divide fixed costs by the revenue per unit minus the variable cost per unit. To calculate break-even point based on sales in GBP: Divide your fixed costs by the contribution margin.
To calculate a break-even point based on units: Divide fixed costs by the revenue per unit minus the variable cost per unit. When determining a break-even point based on sales dollars: Divide the fixed costs by the contribution margin.
The break-even point determines the amount of sales needed to achieve a net income of zero. It shows the point when a company's revenue equals total fixed costs plus variable costs, and its fixed costs equal the contribution margin.
The main purpose of break-even analysis is to determine the minimum output that must be exceeded for a business to profit. It also is a rough indicator of the earnings impact of a marketing activity.
A break even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs (fixed and variable costs. Fixed costs do not change with increases/decreases in units of production volume, while variable costs are solely dependent).
Definition: The break even point is the production level where total revenues equals total expenses. In other words, the break-even point is where a company produces the same amount of revenues as expenses either during a manufacturing process or an accounting period.
Break-even analysis is a useful tool for working out the minimum sales needed to avoid losses. However, it has its limitations. It makes assumptions about various factors — for example that all units are sold, that forecasts are reliable and the external environment is stable.
Even with its advantages and uses, there are also several demerits of break-even analysis. Assumes that sales prices are constant at all levels of output. Assumes production and sales are the same. Break even charts may be time-consuming to prepare.

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