Break-Even Calculator
Break-Even Calculator
How many units you must sell to cover your fixed costs, the sales revenue that takes, and how many more units reach a profit target — from fixed costs, price and variable cost per unit.
Break-even point
Fixed costs $5,00,000 a month, price $250, variable cost $150 per unit, target profit $1,00,000
Break-even point
- F
- fixed costs for the period
- P
- selling price per unit
- V
- variable cost per unit. P − V is the contribution margin: what each sale contributes towards fixed costs and then profit.
Worked example
Fixed costs $5,00,000 a month, price $250, variable cost $150 per unit, target profit $1,00,000
Contribution margin = 250 − 150 = $100 a unit (40% of the price)
Break-even = 5,00,000 ÷ 100 = 5,000 units
Break-even revenue = 5,000 × 250 = $12,50,000
For a $1,00,000 profit: (5,00,000 + 1,00,000) ÷ 100 = 6,000 units, revenue $15,00,000
Reading the break-even point
Every unit you sell brings in its price and costs you its variable cost. What is left — the contribution margin — goes first towards the fixed costs you pay whatever you sell, and once those are covered, into profit. The break-even point is simply fixed costs divided by that contribution. In the example each sale contributes $100, so $5,00,000 of fixed costs needs 5,000 sales; the 1,000 sales after that earn the $1,00,000 target.
The chart plots revenue and total cost as sales rise. Total cost starts at the fixed costs, because they are owed even at zero sales, and climbs by the variable cost with each unit; revenue starts at zero and climbs faster. Where the lines cross is the break-even point. The horizontal axis counts twenty equal steps from zero sales to about twice the break-even volume, each step a tenth of break-even rounded up to whole units, so the lines meet at or just before step 10; the table gives the units at every step.
Break-even units are rounded up because you cannot sell part of a unit: with fixed costs of $1,00,000, a price of $99 and a variable cost of $62.50, the exact point is 2,739.73 units and the 2,740th sale is the first that covers costs.
The model is deliberately simple. It assumes one price, a variable cost that does not change with volume, and fixed costs that stay fixed — in practice discounts, bulk buying and a second shop all bend the lines. Use the same period for everything: a month’s fixed costs against a month’s sales. Loan EMIs are usually a fixed cost here; the EMI calculator works them out. Income tax on profit is not included; the target is a profit before tax. To check the price itself, use the profit margin calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do you calculate the break-even point?
Divide fixed costs by the contribution margin per unit (price − variable cost). $5,00,000 ÷ (250 − 150) = 5,000 units.
What is contribution margin?
The price minus the variable cost of one unit: what each sale contributes to fixed costs and then to profit. At a $250 price and $150 variable cost it is $100, or 40% of the price.
How many units do I need to sell for a target profit?
(Fixed costs + target profit) ÷ contribution margin. For a $1,00,000 profit in the example: 6,00,000 ÷ 100 = 6,000 units.
What if my price is below the variable cost?
Then every sale adds to the loss and there is no break-even point. Raise the price or cut the variable cost before worrying about volume.
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References
- Horngren CT, Datar SM, Rajan MV. Cost Accounting: A Managerial Emphasis. Pearson. Chapter on cost–volume–profit analysis: contribution margin, break-even point and target operating income.
- Garrison RH, Noreen EW, Brewer PC. Managerial Accounting. McGraw-Hill. Gross margin, contribution margin and cost-plus pricing (markup on cost).