Definition of Break Even Point



The breakeven point is a point at which the business is making neither profit nor loss. At the break-even point, sales revenues are exactly equal to the total cost. Total costs include fixed cost and variable cost. To calculate the break-even point, we need to calculate the unit contribution margin.

 


Contribution margin per unit is calculated deducting variable cost per unit from sales price per unit. Then the fixed cost is divided by the contribution margin per unit to calculate the break-even point. Here is the formula for breakeven point:

Break Even Point Formula

 


Example of Breakeven Point:

Assume that a bakery has a fixed building rent of $15000, and it sells loaves of bread for $10 each that has a variable cost of $6 each. The break-even point will be calculated as follows

Breakeven Point Calculation

 

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