breakeven

Breakeven is the level of sales at which total revenues equal total costs, resulting in zero profit and zero loss. It is a fundamental concept in managerial accounting and financial planning, used to assess the viability of products, projects, or business ventures. Breakeven analysis assumes a single product or a constant mix and focuses on the relationship between costs, volume, and revenue.

Calculations can be expressed in units or dollars. Breakeven in units = fixed costs divided by (selling price per unit minus variable cost per unit). Breakeven in dollars = fixed costs divided by the contribution margin ratio, where the contribution margin ratio equals (selling price minus variable cost) divided by the selling price. For example, with fixed costs of 100,000, a price of 25 per unit, and a variable cost of 15 per unit, the breakeven point is 100,000 / (25 − 15) = 10,000 units. This yields 250,000 in revenue, 150,000 in variable costs, and a 100,000 contribution to cover fixed costs.

Breakeven analysis informs pricing, production planning, budgeting, and target profit setting. The margin of safety—actual or expected sales minus the breakeven sales—measures risk. Variants include cash breakeven (focusing on cash inflows and outflows) and multi-product or capacity-constrained breakeven calculations.

Limitations include assumptions of linear cost behavior, constant selling prices, and a fixed cost structure within the relevant range. Real-world decisions should consider non‑linear costs, market dynamics, capacity limits, and strategic factors beyond a single breakeven point.