Break even point

Esme

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!

A-Vic

Breakeven in Units Fixed costs/contribution

A-Vic

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

Esme

Thanks.. I've got the answer in units but also need to show it in terms of sales revenue?!

marknotgeorge

So multiply break-even in units by selling price to get break-even in sales revenue.

SandyHood

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.

Esme

Thanks Marknotgeorge and Sandy.. I was thinking it was much more complicated than it actually was!