Example of break even

Example of break even

Break even is a point where the organization is able to recover its fixed cost only and therefore this is no profit no loss situation. There are two methods of calculating the break even point i.e.

Formula for break even

Break even point = Fixed Cost / unit contribution

Example of Break even

Unit Sale Price	120
Unit Material Price	60
Unit Labour	20
Unit Overheads costs	20
Fixed asset	60,000
Calculate break even

Solution

Step 1 Calculate unit contribution

Sale price		120
Variable cost	(60+20+20)	100
Unit Contribution	(120-100)	30

Step 2 calculate breakeven point

Fixed cost		60,000
Break even	60,000/20	3000 units

Check the breakeven point

	unit	Rate
Sales	3000	120	360,000
Variable Cost	3000	100	300,000
Contribution			60,000
Fixed cost			(60,000)
Profit			0

In above example it is explained that when 3000 units are sold then there is no profit no loss situation which is technically knows as breakeven point. The above explained method of break even calculation is known as volume based break even i.e. break even volume is calculated or break even is calculated first in term of volume and then it is converted into amount.