Break even analysis determines the point where total revenue equals total costs, allowing businesses to analyze the potential profitability of a new product or expenditure. It is calculated by dividing fixed costs by the contribution per unit, which is selling price per unit minus variable costs per unit. A financial model can be created in Excel to perform break even analysis by inputting values for fixed costs, selling price, variable costs, and calculating the break even point in units and sales.

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Financial Modeling in Excel
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Financial Modeling in Excel
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2. Break Even Analysis
• The point where
– Total revenue received equals the total costs
associated with the sale of the product (TR =
TC)
– Typically calculated in order for businesses to
determine if it would be profitable to sell a
proposed product
– Can also be used to analyze the potential
profitability of an expenditure in a sales-based
business
• Important Formulas
– Break even point = fixed cost / contribution per
unit
– Contribution (per unit) = selling price (per unit) -
variable cost (per unit)
– Break even point (for sales) = fixed cost /
contribution (per unit) * selling price (per unit)
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3. Creating a model for Break Even Analysis
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Creating a model for Break Even Analysis
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