Accounting Breakeven Point
What is the Accounting Breakeven Point?
The accounting break-even point is a level of units sold at which a business earns no profit or loss. The accounting break-even point is calculated by Fixed Costs and Divided by (Selling Price – Variable Costs). Or you can just divide the Fixed cost by Contribution Margin.
How to Calculate Breakeven Point?
Step 1. Contribution Margin:
In this step, we’ll determine the contribution margin just by taking the Net sales and deducting the Variable costs. So, if a business’s net sale is $10,0000, and the variable costs are $10,000 then the contribution margin will be $90,000. The contribution percentage is 90%.
Fixed costs are the costs that are not related to the unit of production, for example, Rent is an expense that we need to pay even if we don’t produce any products. Now calculate the total fixed cost incurred in the business in an accounting period.
Step 3. Calculate Breakeven Point:
After calculation of all the fixed costs now it’s time to calculate the break-even point. Simply break-even point is fixed assets divided by the contribution margin. Let’s say our fixed assets are $200000, and our contribution margin is $100. The breakeven point will be ($200000/$100) = 20000 units.