Calculating Your Break-Even Point

Calculating Your Break-Even Point 

By: Abu Dhabi SME Hub
Accounting

Break-even analysis is used to determine when your business will be able to cover all its expenses and begin to make a profit. 

The level of sales at which profit is zero is called the break-even point. To calculate your break-even point, you will need to identify your fixed and variable costs.

Fixed costs are expenses that do not vary with sales volume, such as rent and administrative salaries: these expenses must be paid regardless of sales, and are often referred to as overhead costs.

Variable costs fluctuate directly with sales volume, such as purchasing inventory, shipping, and manufacturing a product.

The break-even point is when both variable and fixed expenses are fully covered. 

 

Unit sales to break even = Fixed Expenses/(Unit selling price – Unit variable cost) 

Dirham sales to break even = Unit sales to break even* Unit price 

 

You might also like