![]() The break-even point is this example is 100,000 units because it is the output level at which the total revenue and total cost curves intersect.Īt any point below the break-even point, the company is incurring losses equal to the red-shaded area and at any point above 100,000 units, the company is making profit as represented by the blue-shaded area. Leave the Targeted Net Income at 0 to calculate the break-even. Drawing a break-even diagram Step 1 Extract the data Step 2 Calculate the BEQ Step 3 Fix the X axis (capacity) Step 4 Fix the Y axis (revenue and costs). You have no profit or loss at this point. If you are breaking even your income is are equal to your costs. Enter your per-unit Selling Price at the top of the sheet, then fill in your Fixed Costs and Variable Costs per unit. Gathering Information for Analysis Steps to Break-Even Analysis Analyzing a Break-Even Chart Photo: Sabine Schedkel/Getty images Break-even is one of those vital numbers that can mean success or failure to a small business. If we plot this table, we get the following graph: Use this worksheet if you know your costs and price per unit, and want to calculate how many units you need to sell in order to break even. $$ \text $$īy plugging different Q values, we can create a table of total revenue and total costs, which may be bifurcated into total variable costs and total fixed costs.Īn extract from the table is as follows: Quantity Using the data above, we can write the following equations for total revenue and total costs: Let’s find the minimum number of kilometers which the cabs must be plied or the company will suffer a loss. Its fixed costs are $200,000 per cab per annum and its variable operating costs are $3 per kilometer. Let’s consider a cab company which charges $5 per kilometer. ![]() output bracket in which fixed costs do not change. After the break-even point, any additional sales will generate profits. Your business is breaking evennot making a profit but not losing money, either. With a break-even analysis, you will know if your efforts will profit you, or if you need to secure a loan to stay. It is useful only when the production is inside the relevant range i.e. Download Template What is a break-even analysis The break-even point is the point when your business’s total revenues equal its total expenses. A break-even chart visualizes the whole relationship and makes it easier to follow the break-even point.Ī break-even chart is constructed such that units are plotted on the x-axis and revenue/cost on y-axis. When sales are higher than total costs, it earns a profit but when total costs are higher than total sales, it loses money. For a company to make zero profit, its total sales must equal its total costs. Break even point fixed costs / (average price - variable costs) What are fixed costs These costs stay the same, no matter how much you sell. ![]() The break-even point is defined as the output/revenue level at which a company is neither making profit nor incurring loss. A break-even chart is a graph which plots total sales and total cost curves of a company and shows that the firm’s breakeven point lies where these two curves intersect.
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