PR Ede 17
PR Ede 17
PR Ede 17
Practical no-19
Aim- Find the breakeven point for the business idea chosen for you
There are a few basic formulas to help you calculate the break-even point for your business. One is
based on the number of units of product sold, and the other is based on points in sales dollars. Here
is how to calculate the break-even point:
Divide fixed costs by the revenue per unit minus the variable cost per unit. The fixed costs are those
that do not change, no matter how many units are sold. Revenue is the price for which you’re selling
the product minus the variable costs, like labor and materials.
To calculate your break-even point in units, use the following formula: Break-Even Point (Units)
= Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit).
Divide the fixed costs by the contribution margin. The contribution margin is determined by
subtracting the variable costs from the price of a product. This amount is then used to cover the fixed
costs.
To calculate your break-even point in sales dollars, use the following formula: Break-Even Point
(sales dollars) = Fixes Costs ÷ Contribution Margin.
To get a better sense of what this all means, let’s take a more detailed look at the formula components.
Fixed costs: As noted above, fixed costs are not affected by the number of items sold, such as rent paid
for storefronts or production facilities, computers, and software. Fixed costs also include fees paid for
services like graphic design, advertising, and public relations.
Contribution margin: The contribution margin is calculated by subtracting an item’s variable costs
from the selling price. So if you’re selling a product for $100 and the cost of materials and labor is
$40, then the contribution margin is $60. This $60 is then used to cover the fixed costs, and if there
is any money left after that, it’s your net profit.