Break-Even Analysis

Break-even point is the volume of sales at that there is no loss or. Break-even charts graphically show the relationship of cost to profits and volume and display loss or profit at any sales volume in a relevant range

Approaches for break-even analysis

Contribution margin approach

A graph or an equation can be utilized to find out a company's break-even point

Example

Sales price per unit                 Shs. 10

Unit variable expenses           Shs. 4

Fixed expenses                      Shs. 3600                    

Contribution margin               (Shs. 10 unit sales price - E4 variable expenses)

= Shs. 6 unit contribution margin

Also Contribution margin may be expressed like a total. The given equation shows sales equal expenses since there is no income at the break-even point

x = Units to be sold at breakeven point

s = variable expenses + fixed expenses

Shs. 10x = Shs. 4x + Shs. 36000

Shs.6x  = Shs. 36000

X = Shs.36000 Fixed expenses / Shs. 6 unit contribution margin      

   = 6000 units to break-even