Breakeven Formula

Breakeven Formula

The breakeven chart provides a picture of the relationship between sales volume and profits. However, a chart is not required for determining breakeven points. Instead, you can use a formula:

P(X) = F + V (X)

where

F = fixed costs

V = variable costs per unit

X = volume of output (in units)

P = price per unit

Rearranging this formula, the breakeven point is X = F(P – V). in other words, the breakeven point is the volume of sales where total costs just equal total revenues. If, for example, you have a product in which

F = fixed costs = $1,000.00

V = variable costs per unit = $0.75

P = price per unit = $1,00 per unit

then the breakeven point is $1,000/($1.00 – $0.75) = 4,000 units.

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