How to Calculate the Operating Breakeven Point

by Matt McGew

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.

Step 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.

Step 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.

Step 3

Determine the selling price for a single unit of the business's product. For example, assume the selling price is $50.

Step 4

Subtract the variable cost for a single unit from the selling price. Continuing the same example, $50 - $25 = $25.

Step 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.

Step 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.

References (2)

  • "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
  • "Break Even Analysis"; Michael Cafferky et al; 2010