The break-even point is the sales volume at which contribution from the units sold exactly covers fixed costs. At that point, operating profit from the values entered is zero: the business has covered its fixed and per-unit variable costs but has not yet generated a positive profit.
How it works
Enter total fixed costs, the selling price per unit and the variable cost per unit. The calculator subtracts variable cost from selling price to obtain the contribution margin per unit, then divides fixed costs by that contribution. Because partial units usually cannot be sold, the displayed break-even unit count is rounded up to the next whole unit when necessary.
The formula
Fixed costs do not change directly with each unit sold within the period being analysed. Variable cost is the cost associated with each additional unit. Selling price must be greater than variable cost; otherwise each sale provides no positive contribution toward fixed costs.
Worked example
With fixed costs of 50,000, a selling price of 100 per unit and variable cost of 60, contribution is 40 per unit. Break-even volume is 50,000 ÷ 40 = 1,250 units and break-even revenue is 125,000.
Classify costs consistently for the period being analysed. If a cost changes with sales volume, treating it as fixed can distort the break-even estimate, and the reverse is also true.
Frequently asked questions
What does contribution margin per unit mean?
It is the selling price minus the variable cost of one unit. This amount first contributes toward covering fixed costs; after total fixed costs have been covered, additional contribution becomes operating profit under the simplified model.
Why must selling price be higher than variable cost?
If variable cost equals or exceeds selling price, selling another unit does not create positive contribution toward fixed costs, so a finite break-even quantity cannot be calculated using this model.
Does break-even guarantee positive cash flow?
No. This simplified calculation does not model payment timing, financing, taxes, working capital or non-cash expenses. Accounting break-even and cash-flow break-even can therefore differ.