Breakeven point is the level of sales (or revenue generated) that equals all the
Expenses required for generating that revenue. It is not more than the expenses (i.e. no profit)
Nor is it less than the expenses (i.e. no loss). In other words there is neither loss nor profit.
At the breakeven level
Total revenue = Total expenses
(Qty × Unit Price) = (Qty × Unit Cost) + Fixed Exp
Qty × (Unit Price – Unit Cost) = Fixed Exp
Qty × Gross Margin (or Profit) per Unit = Fixed Exp
B.E. Qty for a single product =
Fixed expenses
Selling price per unit - variable cost per unit
B.E. quantity for multiple products
Fixed expenses
Weighted average selling price per unit - Weighted Average variable cost per unit
Please note: Gross margin and gross profit are one and the same.
Example: Formulas and calculation procedure.
Following information is related to sales mix of product A, B and C.
| Product |
A |
B |
C |
Sales price per unit
Variable cost per unit
Sales mix percentage |
₹15/-
₹9/-
20% |
₹21/-
₹14/-
20% |
₹36/-
₹19/-
60% |
| Total fixed cost |
₹40, 000/- |
|
|
Calculation:
Step 1: Calculate the contribution margin per unit for each product:
| Product |
A |
B |
C |
Sales price per unit
Variable cost per unit
Contribution margin per unit |
₹15/-
₹9/-
₹6/- |
₹21/-
₹14/-
₹7/- |
₹36/-
₹19/-
₹17/- |