# Break-even Point Equation Method

Break-even is the point of zero loss or profit. At break-even point, the revenues of the business are equal its total costs and its contribution margin equals its total fixed costs. Break-even point can be calculated by equation method, contribution method or graphical method. The equation method is based on the cost-volume-profit (CVP) formula:

px = vx + FC + Profit |

Where,**p** is the price per unit,**x** is the number of units,**v** is variable cost per unit and**FC** is total fixed cost.

## Calculation

### BEP in Sales Units

At break-even point the profit is zero therefore the CVP formula is simplified to:

px = vx + FC |

Solving the above equation for x which equals break-even point in sales units, we get:

Break-even Sales Units = x = | FC |

p − v |

### BEP in Sales Dollars

Break-even point in number of sales dollars is calculated using the following formula:

Break-even Sales Dollars = Price per Unit × Break-even Sales Units |

## Example

Calculate break-even point in sales units and sales dollars from following information:

Price per Unit | $15 |

Variable Cost per Unit | $7 |

Total Fixed Cost | $9,000 |

### Solution

We have,

p = $15

v = $7, and

FC = $9,000

Substituting the known values into the formula for breakeven point in sales units, we get:

Breakeven Point in Sales Units (x)

= 9,000 ÷ (15 − 7)

= 9,000 ÷ 8

= 1,125 units

Break-even Point in Sales Dollars

= $15 × 1,125

= $16,875

by Irfanullah Jan, ACCA and last modified on