Break-Even Point (units)
Fixed Costs
Costs that don't change with output. E.g. rent, salaries, insurance. You pay these whether you sell 0 or 10,000 units.
Variable Costs
Costs that change with output. E.g. materials, stock, packaging. The more you produce, the higher these costs.
Selling Price
The price charged to customers per unit. This must be higher than the variable cost per unit to make a contribution.
Contribution
Selling Price − Variable Cost per Unit. This is how much each unit sold contributes towards covering fixed costs. It's the denominator of the BEP formula.
What does break-even mean?
The break-even point is the level of sales where total revenue = total costs. The business makes neither a profit nor a loss. Every unit sold above this point generates profit equal to the contribution per unit.
Break-Even Calculator
Enter your figures to calculate the break-even point and see the working.
Gym Example from Session
Fixed costs = £10,000 · Price = £25 · Variable cost = £5 per member
Contribution = £25 − £5 = £20 · BEP = £10,000 ÷ £20 = 500 members
Member 501 = £20 profit
Practice Questions
Write down the formula, work it out on paper, then type your answer.