Learn to calculate break even point.

1. QUANTUM CPAS & ADVISORS,
PLLC
WHAT IS YOUR BREAK-
EVEN POINT?
Cost Accounting 101

2. Definitions
Let's Define Key terms
Sales- is the $ amount usually calculated by
multiplying youR #Units * Unit Price or your
Service Price.
Fixed Costs- are predictable costs that recur.
They do not change over a short period. Think of
rent, annual insurance, salaries, utilities. (some of
these items have a variability element but it's
largely fixed.
Variable Costs- are costs that change based on
business activity. Examples are direct materials,
cost of labor, commissions...

3. THE BREAK EVENT POINT EQUATION
Break Even tells you how much you need to sell to cover your costs and generate ZERO
profit.
BreakEven=Sales-
FixedCosts-Variable
Costs=Zero

4. LET'S SET AN EXAMPLE
Start by listing all your fixed expenses say rent is $500/month, telephone and internet
$250/month, business insurance is $250/month and you have one employee at
$1,000/month
Then list your variable expenses such as cost per product say $5 and cost of direct labor
to produce that product $15. Say you plan to produce 100 /month.
Therefore
Fixed costs = 500+250+250+1000 =$2,000/month
Variable Costs = 100 * (5+15) = $2,000/month
Total Costs =$4,000/month
You would have to have total sales of $4,000 to break even. So you plan to sell each
product at $40 to break even.

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