bkeven

Notes on Breakeven Analysis Terminology:
Fixed costs
Variable costs
Relevant range of activity
contribution margin
contribution margin ratio
variable cost ratio

Breakeven point may be calculated in total dollar sales, such as:

or it may be calculated on a number of units basis, such as:
( must have unit data to calculate breakeven point in terms of units)

sales price per unit x number of units = total fixed costs + variable cost per unit x number of units
or:
SP * X = FC + VC * X
(SP-VC) * X =FC
X= FC/(SP-VC)

where SP = sales price per unit
            FC= total fixed costs
            VC=variable cost per unit
             X= units to breakeven

the term, (SP-VC) = contribution margin per unit

therefore, breakeven point in terms of units equals fixed costs divided by contribution margin per unit.

To determine what sales level it takes to generate a certain level of income, treat the income desired as an additional fixed cost in the numerator.

If a certain income is desired after tax, first convert the after-tax income to a before tax income equivalent by dividing the after-tax income by ( 1-tax rate)