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Break even point

EsmeEsme Experienced MentorRegistered Posts: 711
Hi,

Does anyone have a formula for calculating break even point in terms of sales revenue? The only way I can find in my book is by drawing a graph... which looks a bit complicated!

Thx in advance!

Comments

  • A-VicA-Vic Expertise Guaranteed Registered Posts: 6,970
    Breakeven in Units Fixed costs/contribution
  • A-VicA-Vic Expertise Guaranteed Registered Posts: 6,970
    Not sure if you needed them but heres the others i got from a very nice fello AATer

    Management Account Formulas

    Contribution Selling price per unit-variable costs per unit

    Breakeven in Units Fixed costs/contribution

    PV Ratio Contribution/sales price

    Breakeven in Revenue Fixed costs/pv ratio

    Margin of Safety in Units Forecast-breakeven

    Margin of Safety % Margin of safety in units/forecast x 100

    Target Profit Fixed costs + target profit/contribution
  • EsmeEsme Experienced Mentor Registered Posts: 711
    Thanks.. I've got the answer in units but also need to show it in terms of sales revenue?!
  • marknotgeorgemarknotgeorge Well-Known Registered Posts: 158
    So multiply break-even in units by selling price to get break-even in sales revenue.
  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    Most questions in the past have been written in a way that let you find the break even number of units and simply multiply that amount by the price per unit.

    The standards would allow the examiner to present a profit and loss account for a business e.g. a restaurant or pub, and then ask for the breakeven sales revenue.

    Restaurants sell a variety of products, so calculating breakeven in terms of units is not useful.

    So take 2 steps
    1. Calculate the contribution % of the revenue. (Sales revenue less variable costs) divided by sales revenue. (Called the PV ratio, but I advise you to keep it as a decimal rather than converting it to a %)
    2. Then take the fixed costs and divide by the answer to 1.

    This gives the Sales Revenue needed to break even.
    Sandy
    [email protected]
    www.sandyhood.com
  • EsmeEsme Experienced Mentor Registered Posts: 711
    Thanks Marknotgeorge and Sandy.. I was thinking it was much more complicated than it actually was!
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