Breakeven Analysis in Excel
Breakeven analysis in Excel using the variables like contribution margin, fixed costs and variable cost is quick and easy. A company is supposed to break even when the total expenses equals the total revenues. It can also be defined as the point where the net profit is zero, i. e. the company has neither made any profits nor incurred any loss.
We have also calculated the breakeven point using: break even point = fixed cost / contribution margin per unit
And contribution (per unit) = selling price (per unit) – variable cost (per unit)
Terms used in the Break-Even Analysis:
Unit Price: The amount of money charged to the customer for each unit of a product or service.
Unit Sales: Number of units of the product projected to be sold over a specific period of time.
Variable Unit Cost: Costs that vary directly with the sales and production of one additional unit. Example, commission on sales.
Fixed Cost: The sum of all costs required to produce the first unit of a product. Example, administration costs.
Total Variable Cost: The product of unit sales and variable unit cost. (Unit Sales * Variable Unit Cost )
Total Cost: The sum of the fixed cost and total variable cost for any given level of production and sales. (Fixed Cost + Total Variable Cost )
Total Revenue: The product of expected unit sales and unit price. (Unit Sales * Unit Price )
Net Profit (or Loss): Total Revenue – Total Costs
Break even analysis depends on the following variables:
- The fixed production costs for a product
- The variable production and sales costs for a product
- The product’s unit price
- The product’s expected unit sales
Another way to look at the break-even point is that it is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.
Watch the video:
How to Do a Breakeven Analysis