Break Even Point

The break-even point in business accounting refers to the amount of revenue a company must earn to cover its total fixed and variable expenses within a specific period of time. Revenue can be expressed in monetary terms, as the number of units sold or as the number of hours provided.

A break-even point can also be defined as the point at which revenue forecasts are equal to estimated costs. It is at this point that a company begins to accumulate profits. 

A project, product, or business becomes financially viable at this point.

The Break-Even Point helps to decide how many products or services a business must sell to cover all costs and record profit. To calculate this, the fixed costs must be known. The Fixed Costs are the reoccurring necessary business operating costs which encompass the salaries, rent, etc.

Next is the Variable Cost per Unit. It's the amount of manufacturing a product or service per unit.  And the last one sales price. The Sales Price is the amount a unit of product or service sells for.

To calculate this, use this simple method:

(Fixed Costs / Sales Price) – Variable Cost Per Unit.

Break even point equation

It means you'll divide Fixed Costs by Sales prices, then subtract the result from the Variable Cost Per Unit. The final result shows the volume to be sold to cover.