The break even price represent the sales price that you must charge for a product in order for your revenues to meet your expenses. Finding the break even point requires you to know the fixed and variable costs for the product. Fixed costs are expenses that do not change regardless of the number produced, such as rent costs. Variable costs are expenses that increase as you produce more units, such as the costs of raw materials.
Estimate the number of units you will sell per year, your total fixed costs and your total variable costs. For example, if you have a rug making business, you might expect to sell 1,000 rugs per year, have fixed costs of $40,000 and a variable cost of $25 per rug.
Divide the fixed costs by the number of units you expect to sell to find the fixed costs per unit. For example, if you have a rug business that has $40,000 in overhead costs, you would divide $40,000 by 1,000 to get $40.
Add the variable costs per unit to the fixed costs per unit to find the break even price. Finishing the example, you would add $40 to $25 to find the break even price would be $65.
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