Lessons · Accounting · break-even in units and in sales
Break-even: how many you must sell to cover the costs
Each unit sold contributes its price less its variable cost. Break-even units is fixed costs divided by that contribution; break-even sales is those units times the price.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
The owner of a coffee cart asks how many cups a day before the rent and the licence are covered and the first cent of profit appears. One division answers it, and the answer decides whether the cart opens.
How to think about it
Price minus variable cost per unit is the contribution. Total the fixed costs for the period. Divide fixed by contribution for units. Multiply by price for sales.
Worked example
Price 4.00, variable cost 1.50 → contribution = 4.00 − 1.50 = 2.50 per unitWhat each cup leaves behind toward the fixed costs.
Fixed costs 5,000 per monthRent, licence, insurance: the same whether one cup or ten thousand is sold.
Break-even units = 5,000 / 2.50 = 2,000 unitsTwo thousand cups a month before any profit.
Break-even sales = 2,000 × 4.00 = 8,000The same point, in money.
Your turn
Fixed costs 6,000, break-even 1,500 units. Write the line with the contribution per unit filled in.
Break-even units = 6,000 / = 1,500
Solve one, graded on the server
The trap
Dividing fixed costs by the price. 5,000 / 4.00 is 1,250 cups, and at 1,250 cups the cart has covered the rent and not the milk.