The water bottle is sold at a premium price of $12. To determine the break even point of Company A’s premium water bottle:īreak Even Quantity = $100,000 / ($12 – $2) = 10,000 The variable cost associated with producing one water bottle is $2 per unit. He previously determined that the fixed costs of Company A consist of property taxes, a lease, and executive salaries, which add up to $100,000. Example of Break Even AnalysisĬolin is the managerial accountant in charge of Company A, which sells water bottles. For example, if a book’s selling price is $100 and its variable costs are $5 to make the book, $95 is the contribution margin per unit and contributes to offsetting the fixed costs. It is also helpful to note that sales price per unit minus variable cost per unit is the contribution margin per unit. Variable Cost per Unit is the variable costs incurred to create a unit.Sales Price per Unit is the selling price (unit selling price) per unit.Fixed Costs are costs that do not change with varying output (e.g., salary, rent, building machinery).The formula for break even analysis is as follows:īreak Even Quantity = Fixed Costs / (Sales Price per Unit – Variable Cost Per Unit) Image: CFI’s Budgeting & Forecasting Course. A break even point analysis is used to determine the number of units or dollars of revenue needed to cover total costs ( fixed and variable costs). ![]() Break Even Analysis in economics, business, and cost accounting refers to the point in which total cost and total revenue are equal.
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