Definition of break even analysis
- To calculate a break-even point based on units: Divide fixed costs by the revenue per unit minus the variable cost per unit. …
- When determining a break-even point based on sales dollars: Divide the fixed costs by the contribution margin.
Break–even analysis is widely used to determine the number of units the business needs to sell in order to avoid losses. This calculation requires the business to determine selling price, variable costs and fixed costs.