Methods to Calculate Break Even Point in Sales ($) Value:
Break even point in sales ($) value may be calculated in two ways but both give the same answer:
(1) Formula:
Contribution ratio is calculated as:
Contribution ratio may be improved by:
- Increasing the sale price.
- Reducing the variable costs.
- Switching production to products with higher contribution rate.
(2) Formula:
Break-even point in value may also be calculated as:
Solved Example:
A company has a product, which is sold @ $21 per unit. The per unit variable costs are $14. Fixed costs are $0.70 per unit at the budgeted production level of 300000 units.
Required:
What is the break even level in units and sales revenue?
Solution:
To read another solved example, click target profits page. On this page solved example 2 is relevant to this article.