This article explains how to use the breakeven formula in order to determine when you will start making a profit with your company or business. The breakeven analysis calculates the breakeven point based on fixed costs, variable costs per unit of sales and revenue per unit of sales.
Identify variable costs — costs that may change at any given time. These include cost of goods sold, sales commissions, shipping charges, delivery charges, costs of direct materials or supplies, wages for part-time or temporary help, and sales or production bonuses.
Define fixed costs — those that do not change. They include rent, interest on debt, insurance, plant and equipment expenses, business license fees, and salaries of permanent full-time employees.
Total all variable costs for the accounting period. Divide the total by the number of units sold to find the cost per unit. The same goes for jobs if you own a service business.
Subtract variable costs per unit from sales price per unit to find the contribution margin per unit.
Divide the contribution margin per unit by the sales price per unit to find the contribution margin ratio.
Divide fixed costs by the contribution margin ratio to find the breakeven sales volume.