15 break-even

• Calculating the break-even level of output

  1. Work out price minus variable costs per unit

  2. Apply the formula: Break-even = Fixed costs / (Price - Variable costs per unit)
• Break-even point


  The level of output where total revenue equals total costs
• The break-even point is in units, not money
• Margin of safety


  The gap between sales and the break-even point
• The wider the margin of safety, the more comfortable the business can feel
• Margin of safety = Sales (in units) - Break-even point
• Break-even diagrams


  • Help managers make decisions about the future

  Can show the impact of changes in revenue and costs
• Break-even charts show the answers visually, which can make them easier to use and explain to staff