Breakeven Point

• The point at which a company makes neither a profit or a loss

• Fixed Cost / Contribution Margin Per Unit*
• CM per unit = Selling Price – Variable Cost
Breakeven Point
• Example: Banana Cue
• Variable Costs
• Banana: P1.50 x 3/stick = P 4.50
• Stick: P 0.25
• Oil: 1 bottle/20 pcs @ P20/bottle = P 1.00
• Sugar: ¼ kg/20 pcs @ P12.50 = P 0.625
P 6.375

• Fixed Cost
• Labor/day P300.00
• LPG: 1 tank/month (P750/26 days) P 28.85
• Owner’s Salary P500.00
• Rental (P500/26 days) P 19.25
P848.10
Breakeven Point
• Example: Banana Cue]
• Selling Price P 20.00
• Less Variable Cost P 6.375
• Contribution Margin/Unit P 13.625
• Breakeven Point
• Fixed Cost P848.10
• Divide by: P 13.625
• Breakeven (Volume) ~ 63 pcs
• Breakeven (Sales) P1,260.00/day
Breakeven Point
• Margin
• Fixed Cost P 848.10
• Add desired margin P 500.00
P1,348.10

• Divide by: P 13.625

• Breakeven (Volume) ~ 99 pcs
• Breakeven (Sales) P1,980.00/day
Formula for Break Even Analysis
The formula for break even analysis is as follows:

• Break even quantity = Fixed costs / (Sales price per unit – Variable
cost per unit)

Where:
Fixed costs are costs that do not change with varying output (i.e.
salary, rent, building machinery).
Sales price per unit is the selling price (unit selling price) per unit.
Variable cost per unit is the variable costs incurred to create a unit.
Example of Break Even Analysis
• Colin is the managerial accountant in charge of
Company A, which sells water bottles. He previously
determined that the fixed costs of Company A consist of
property taxes, a lease, and executive salaries, which add
up to Php100,000.00. The variable costs associated with
producing one water bottle is Php 2.00 per unit. The water
bottle is sold at a premium price of Php12.00. To determine
the break even point of Company A’s premium water
bottle:
 Break even quantity = 100,000 / (12 – 2) = 10,000

Where:
Fixed costs = Php 100,000.00
Sales price per unit = Php 12.00/unit
Variable cost per unit = Php 2.00/unit

Therefore, given the fixed costs, variable costs, and selling

price of the water bottles, Company A would need to sell
10,000 units of water bottles to break even.