Let's look at the most common way of calculating breakeven output - using formulae
Here is a table showing the sales, variable costs, fixed costs and profits from various levels of output for a one-product business:
The product is sold for £10 per unit. The variable cost per unit is £4. Fixed costs are £40,000 (the same at each level of output).
Let's use the same information as above to show how a formula can be used to quickly calculate the break-even output.
Remember contribution per unit? Here is a reminder of this crucial and really useful formula:
Contribution per unit = selling price per unit less variable cost per unit
In our example, contribution per unit = £10 less £4 = £6 per unit
Now apply the classic formula for calculating breakeven output:
Break-even output (units) = Fixed costs (£) / Contribution per unit (£)
So, break-even output = £40,000 divided by £6 = 6,666 units
Note: break-even output is always expressed in terms of units
So break-even output = 6,666 units
If the information is available, it is always quicker and easier to use this formula rather than use a table or draw a chart.
© 2021 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.