Q:

How do you calculate the break-even point in units?

A:

Quick Answer

The break-even point in units is fixed costs divided by the difference between the sale price per unit and the variable cost per unit. Figuring out the break-even point is critical for business owners to come up with short-term and long-term financial plans. It is only possible to achieve a break-even point if the variable cost per unit is less than the price per unit.

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Full Answer

Fixed costs can usually be determined to the cent, considering that every component has a tangible value. Also, the sale price is a fixed value. However, variable costs may fluctuate depending on market prices or production techniques. As long as a business owners can make a reasonable estimate, it is possible to calculate break-even point in units.

For each unit sold, part of the sale price covers labor and transportation costs, which are variable costs. The rest of the sale goes towards paying for fixed costs. If a firm is unable to meet the break-even point, it may do one of two things. Firstly, the price per unit may be increased, but this may negatively impact sales. Secondly, variable costs may be reduced through sourcing cheaper materials or developing more efficient technology. Fixed costs remain the same no matter which decision is made.

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