Week 14 Day 4 Action Items

Day 4

• [ ] Learn the formula for calculating the break-even point.
• [ ] Apply the formula to your business context to determine your break-even point.

Break-Even Point Formula

$$ \text{Break-Even Point (in units)}=\text{Fixed Costs}/(\text{Selling Price per Unit} - \text{Variable Cost per Unit}) $$

Explanation:

• Fixed Costs: These are costs that remain constant regardless of the number of units produced or sold. Fixed costs include things like rent, salaries, and utilities.
• Selling Price per Unit: This is the amount of money a company receives for selling one unit of its product or service.
• Variable Cost per Unit: Variable costs are expenses that vary in direct proportion to the number of units produced or sold. They include costs like raw materials and direct labor.

The break-even point is the level of sales at which a company covers all of its costs and neither makes a profit nor incurs a loss. In other words, it is the point at which total revenue equals total costs. The formula calculates the number of units that need to be sold to cover both fixed and variable costs.

Use the formula and the elements you identified yesterday to determine the break-even point for your desired product or service.

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