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Managerial Accounting

Chapter 5: Cost Behavior and Cost-Volume-Profit Analysis

5.6 Break – Even Point for a single product

Finding the break-even point

A company breaks even for a given period when sales revenue and costs charged to that period are equal. Thus, the break-even point is that level of operations at which a company realizes no net income or loss.

A company may express a break-even point in dollars of sales revenue or number of units produced or sold. No matter how a company expresses its break-even point, it is still the point of zero income or loss. To illustrate the calculation of a break-even point watch the following video and then we will work with the previous company, Video Productions.

Before we can begin, we need two things from the previous page: Contribution Margin per unit and Contribution Margin RATIO. These formulas are:

Contribution Margin per unit = Sales Price – Variable Cost per Unit

Contribution Margin Ratio =Contribution margin (Sales – Variable Cost)

Sales

Break-even in units

Recall that Video Productions produces DVDs selling for $20 per unit. Fixed costs

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step-by-step explanation: