Explanation
The Break-even Point is the sales quantity where:
Total Revenue = Total Cost
At break-even:
Profit = 0
Formula
Break-even Quantity = Fixed Cost ÷ (Selling Price − Variable Cost per Unit)
Revenue
Total cost
Loss
Profit
10203040506050010001500Quantity$Q*
\(Q^*=\frac{F}{p-v}=\frac{\text{600}}{\text{35}-\text{15}}=\text{30}\)
Q* is the break-even quantity where total revenue matches total cost.
\(F\)
$
\(v\)
$/unit
\(p\)
$/unit
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Example
- Fixed Cost = ₹50,000
- Selling Price = ₹1,000
- Variable Cost = ₹600
Contribution per unit:
₹1,000 − ₹600 = ₹400
Break-even quantity:
₹50,000 ÷ ₹400 = 125 units
Practice
Calculate break-even quantity for three different products.