Published Jul 31, 2023 The breakeven point is the point at which total revenue equals total costs. That means it is the point at which a business neither makes a profit nor a loss. It is calculated by dividing the total fixed costs by the contribution margin per unit. To illustrate this, let’s look at a small business that produces and sells widgets. The business has fixed costs of $10,000 per month and a contribution margin of $2 per widget. That means for every widget they sell, they make a profit of $2. To calculate the breakeven point, we divide the fixed costs by the contribution margin. That gives us 10,000/2 = 5,000 widgets. That means the business needs to sell 5,000 widgets per month to break even. The formula for calculating the breakeven point is as follows: Breakeven Point = Total Fixed Costs / Contribution Margin per Unit To calculate the breakeven point, you need to know the total fixed costs and the contribution margin per unit. The contribution margin per unit is the difference between the selling price and the variable costs per unit. The breakeven point is an important concept for businesses because it helps them to understand how much they need to sell in order to cover their costs. Knowing the breakeven point allows businesses to set realistic goals and plan their operations accordingly. It also helps them to identify potential problems and take corrective action before they become too severe. Finally, it can be used to compare different products or services and decide which ones are more profitable.Definition of Breakeven Point
Example
How to Calculate Breakeven Point
Why Breakeven Point Matters
Business Economics