Break-Even Point (BEP)

The break-even point is the sales volume at which total revenue equals total costs and profit is zero.

Core Formulas

• Contribution margin per unit = price − variable cost
• Break-even units = fixed costs / contribution margin per unit
• Break-even revenue = break-even units × price

Example

Price $50, variable cost $30, fixed costs $40,000.

• Contribution margin per unit = 50 − 30 = $20
• Break-even units = 40,000 / 20 = 2,000 units
• Break-even revenue = 2,000 × 50 = $100,000

Step-by-Step

1. Identify fixed costs for the period.
2. Determine price and variable cost per unit.
3. Compute contribution margin per unit.
4. Divide fixed costs by contribution margin to get break-even units.
5. Multiply by price for break-even revenue.

Sensitivity & Pitfalls

• Mixed products require weighted-average margins.
• Step costs and capacity constraints can invalidate linear assumptions.
• Discounts change effective price and margin; adjust inputs accordingly.