Explain how break-even points are or can be calculated.

Question

Can anyone explain how break even points would be calculated?

Answer 1

You determine you BEP like this.

Fixed Costs divided by (selling price - variable costs).

EG - suppose that your fixed costs for producing 100,000 widgets were $30,000 a year.

Your variable costs are $2.20 materials, $4.00 labour, and $0.80 overhead, for a total of $7.00.

If you choose a selling price of $12.00 for each widget, then:

$30,000 divided by ($12.00 - 7.00) equals 6000 units.

This is the number of widgets that have to be sold at a selling price of $12.00 before your business will start to make a profit.