THE COSTS
BREAK-EVEN POINT

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• Break-Even Point
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Interesting Articles The break-even point is the level of operations to which the income of a company and costs incurred are exactly the same.
In the break-even point, a company would not have neither an operational income nor an operational loss. The break-even point is useful in planning for the company, especially when there is an expansion or reduction of operations. To illustrate the calculation of the break-even point, assuming that the fixed costs for the company America, Inc. are estimated at \$90,000. The sales unit price, variable unit cost, and unit contribution margin for the company mentioned are as follows:

Sale unit price                  \$25
Variable unit cost             \$15
Contribution margin of \$10 per unit

The sales break-even are 9,000, which are calculated using the following equation:

 Fixed Costs          Break-Even Point (units) = ----------------------------------                                                           Contribution margin per unit

Break-Even Point (units) = (\$90,000 / \$10) = 9,000 units

The following income statement confirms the above calculation:

 Sales (9,000 units X \$25) \$225,000 (-) Variable Costs (9,000 X \$15) 135,000 Contribution margin \$90,000 (-) Fixed Costs 90,000 Operational Income \$0

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