Finamcial Management

How to perform a break-even analysis

Calculating the break-even point can be simple for a single offering business, but
more complex for multi-line or multi-service businesses. Whatever the complexity,
the basic technique is the same.

Formula Meaning of the formulae Example

S = FC + VC

S = Break-even level of sales in dollars $221 = $55 + $

FC = Fixed costs in dollars FC = $

VC = Variable costs in dollars VC = $

Examples of fixed costs are:

Rent

Management salaries

Office and administrative expenses

Property tax and insurance

Interest on loans

Depreciation

Examples of variable costs are:

Raw material

Labour (wages) and payroll taxes

Packaging materials

Outgoing freight

Sales Commission

Advertising and promotion

Expenses for parts

Utilities

Equipment maintenance

Miscellaneous expenses (office

supplies, garbage removal)