Breaking Even: A Guide to Analysis
Break-even analysis is a great way to figure out what level of production you need to reach to make a profit - making it an invaluable tool for any business!Formula
Margin of Safety = Revenues - CostsHow do I calculate the break even analysis?
Create a new blank spreadsheet and label the columns as "Units Sold," "Price per Unit," "Variable Costs per Unit," and "Fixed Costs."
In the "Units Sold" column, list the various quantities of units that you want to analyze. Each quantity should be listed in a separate row.
In the adjacent "Price per Unit" column, assign a value to represent the selling price per unit.
In the "Variable Costs per Unit" column, assign a value to represent the variable costs associated with producing each unit.
In the "Fixed Costs" cell, input the total fixed costs incurred by the business.
Calculate the total revenue for each quantity of units sold. Multiply the "Units Sold" by the "Price per Unit" for each row using the appropriate formula.
Calculate the total variable costs for each quantity of units sold. Multiply the "Units Sold" by the "Variable Costs per Unit" for each row using the appropriate formula.
Calculate the total costs for each quantity of units sold. Add the total variable costs to the fixed costs for each row using the appropriate formula.
Calculate the profit or loss for each quantity of units sold. Subtract the total costs from the total revenue for each row using the appropriate formula.
Identify the break-even point, where the profit or loss is zero. This is the quantity of units sold where total revenue equals total costs. You can determine this by finding the row where the profit or loss value is zero. In order to calculate a break-even analysis, it is important to understand the margin of safety, which is calculated by taking revenues and costs. This analysis is used by entrepreneurs, financial analysts, businesses, and government agencies to gain insight into their selling capabilities. To calculate the margin of safety, use the following formula: Margin of Safety = Revenues - Costs. With Sourcetable, you can easily track the sales of your business and compare them to the costs of production, allowing you to accurately calculate your margin of safety.
What is Break-even Analysis?
Break-even analysis is a way to determine the point at which a company's costs and revenues are equal which is also known as the break-even point. It is used to determine the level of production or desired sales mix needed to cover all costs and generate a profit.
What is the formula for Break-even Analysis?
The formula for break-even analysis is Break-even point = Fixed Costs ÷ (Revenue per unit – Variable Costs per unit)How can Break-even Analysis be used?
Break-even analysis can be used to determine the level of production or desired sales mix needed to cover all costs and generate a profit. It can also be used to determine pricing strategies and to evaluate the profitability of different products.
Key Points
How do I calculate break even analysis?
Margin of Safety = Revenues - Costs
Determine Sales Needed to Cover Costs
Break-even analysis is used to determine the level of sales necessary to cover all costs associated with the production of a product or service. This helps businesses to plan their budget and set realistic goals.
Contributions Margin
The break-even point is also used to determine the contribution margin of a product, which is the difference between the sale price and the cost of producing the product. Knowing this information is vital for businesses to set prices that will generate a profit.
