Break-even units
Intermediate FP&ABreak-even analysis is a cornerstone of financial planning. It tells you exactly how many units you need to sell before your business starts making a profit.
At the break-even point, total revenue equals total costs. You're not making money, but you're not losing it either. Every unit sold beyond this point generates profit.
Key concepts:
- Contribution Margin per Unit = Selling Price - Variable Cost per Unit
- Break-even Units = Fixed Costs ÷ Contribution Margin per Unit
The contribution margin represents how much each unit sold contributes toward covering fixed costs. Once you've covered all fixed costs, each additional unit's contribution margin becomes profit.
Your task:
You're analyzing the break-even point for Widget Pro. The spreadsheet shows:
- Selling price per unit (B5)
- Variable cost per unit (B6)
- Monthly fixed costs (B8)
Complete the analysis by:
- Calculate the contribution margin per unit in cell B10
- Calculate the break-even units in cell B11
Need some help?
Hint 1
Contribution margin per unit is the difference between what you sell a unit for and what it costs to make it.
Hint 2
Break-even units equals the total fixed costs divided by how much profit you make on each unit (contribution margin per unit).
Hint 3
For B10, subtract the variable cost (B6) from the selling price (B5). For B11, divide fixed costs (B8) by the contribution margin you just calculated (B10).
Break-even units
Intermediate FP&ABreak-even analysis is a cornerstone of financial planning. It tells you exactly how many units you need to sell before your business starts making a profit.
At the break-even point, total revenue equals total costs. You're not making money, but you're not losing it either. Every unit sold beyond this point generates profit.
Key concepts:
- Contribution Margin per Unit = Selling Price - Variable Cost per Unit
- Break-even Units = Fixed Costs ÷ Contribution Margin per Unit
The contribution margin represents how much each unit sold contributes toward covering fixed costs. Once you've covered all fixed costs, each additional unit's contribution margin becomes profit.
Your task:
You're analyzing the break-even point for Widget Pro. The spreadsheet shows:
- Selling price per unit (B5)
- Variable cost per unit (B6)
- Monthly fixed costs (B8)
Complete the analysis by:
- Calculate the contribution margin per unit in cell B10
- Calculate the break-even units in cell B11
Need some help?
Hint 1
Contribution margin per unit is the difference between what you sell a unit for and what it costs to make it.
Hint 2
Break-even units equals the total fixed costs divided by how much profit you make on each unit (contribution margin per unit).
Hint 3
For B10, subtract the variable cost (B6) from the selling price (B5). For B11, divide fixed costs (B8) by the contribution margin you just calculated (B10).