The operating breakeven point for a business is the point at which sales revenue covers all of the fixed costs and variable costs but produces no profit for the business. A fixed cost is a cost that does not change for business based on the number of units produced. Rent, insurance and interest expenses are examples of fixed costs. A variable cost, on the other hand, represents a cost that changes based on the production volume. Labor and raw materials are examples of variable costs. You can manually calculate the operating breakeven point for a business with some basic information about the business's fixed costs, variable costs and selling price per unit.
1. Determine the total monthly fixed costs for the operations of a business. For example, assume the total fixed costs for the operations of a business is $10,000.
2. Determine the total variable costs for the business to produce a single unit. For example, assume the total variable costs to produce a single unit is $25.
3. Determine the selling price for a single unit of the business's product. For example, assume the selling price is $50.
4. Subtract the variable cost for a single unit from the selling price. Continuing the same example, $50 - $25 = $25.
5. Divide the fixed costs by the figure from Step 4. Continuing the same example, $10,000 / $25 = 400. This figure represents the number of units the business must sell to break even.
6. Multiply the breakeven units by the selling price. Continuing the same example, 400 x $50 = $20,000. This figure represents the breakeven point for the business based on sales revenue.
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
- "Break Even Analysis"; Michael Cafferky et al; 2010
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