Notes on Break Even Point

Fixed Costs Debt Service on equipment, facilities, etc., salaries, taxes, utilities, insurance or, in general, expenses that dont change with increases or decreases in production. Variable Costs direct labor per unit, raw materials per unit Selling Price adjust based on market strategies, net profit expected, break even point in time Here is an example: ixed costs ! "# $ %&','''( )ear *ariable costs !*"# $ %+'( unit Selling price !S,# $ %-'(unit Definition of the break.even point !/0 point#1 !&# the amount of sales at which the net profit is 2ero3 or !4# the point where total cost equals total revenue.
FC +VC 5 Q = SP 5 Q

6he break.even point !/0 point#1 Q =

FC &'''' = = &'''!units ( year # SP VC -' +'

7ere, we know that we have to produce and sell &''' units annuall) to cover our total costs !fixed costs and variable costs#. 8e will have a profit after we produce and sell more than that amount. Break Even Point in Units or example1 in this case, /0 point is &''' units per )ear and sales forecast is1 9ear & :;' units !behind 4;' units# 9ear 4 &''' units !total &4;' units still behind 4;' units# 9ear + &4;' units !total sales at the end of )ear + $ +''' units or &''' units per )ear, thus here )ou break even# 9ou would breakeven at the end of the +rd )ear and would make mone) after )ouve sold &''' units ever) )ear thereafter.