Definition of Break Even Analysis

Break-even analysis is a tool to assess the level of activity at which the business will be at break-even, that means making no gain and no loss. This is often very useful to assess the level of activity to attain a target profit.

Break even units = Fixed cost / Contribution per unit

At breakeven units, the total cost (fixed + variable) is equal to the sales value.


Example of Break even Analysis:

Let us assume that a bakery sells bread for $50 that costs $15 to make it. The fixed cost of the bakery is $7000 per month. To find out the breakeven number of bread per month the following calculations are required.

Contribution per unit = Sales Price – Variable cost = $50 - $15 = $35.00

Break even units = $7,000 / $35.00 = 200 breads


In order to breakeven the bakery will have to make at least 200 bread per month.

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