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If the business suffers a sales downturn at any point, BEP determines the number of losses that a business could sustain.

It helps to determine the effect of the change in the price of a product on the profits.

It helps determine the impact on profit if physical labor (variable cost) is substituted by automation (fixed cost).

Let us put the given information in the formula for calculating the BEP in terms of sales units:īreak-Even Point in Units = Fixed Costs / Sales Price Per Unit – Variable Cost Per Unitīreak Even Point in Terms of Money = Break Even Point in Units x Sales Price Per UnitĪ Break-even point is useful in a lot of situations like:

The formula for calculating BEP in terms of money is:īreak-Even Point = Break-Even Point in Units x Sales Price Per Unit ExampleĬalculate the BEP in terms of dollars and sales units from the information given below:.

With contribution margin, you come to know how much of the company’s revenue will be available to pay for the fixed expenses and to generate the net income.

Contribution margin means revenue minus variable expenses. Let us understand the meaning of contribution margin in brief.

That is,īreak-Even Point in Units = Fixed Costs / Contribution Margin Per UnitĬontribution Margin Per Unit = Sales Price Per Unit – Variable Cost Per Unit There is another simplified formula for calculating the BEP in terms of the number of units. The formula to calculate the break-even point in terms of the number of units is:īreak-Even Point in Units = Fixed Cost / Sales Price Per Unit – Variable Cost Per Unit.