Break-Even Analysis

Break-even analysis helps businesses find the sales level where total revenue equals total cost.

At this point, the business makes no profit and no loss.

At Ben Corporation, Alex is preparing to launch a new smartphone, the company's only product.

Before moving forward, he wants to know how many units must be sold to break even.

Each smartphone sells for five hundred dollars, while the variable cost per unit is three hundred dollars.

The company also has fixed costs of four hundred thousand dollars associated with this smartphone.

To calculate the break-even point, Alex first finds the contribution margin per unit by subtracting the variable cost per unit from the selling price per unit.

This gives him a contribution margin of two hundred dollars per smartphone.

Next, Alex divides the fixed costs by the contribution margin per unit.

By dividing four hundred thousand by two hundred, he finds that the company must sell two thousand smartphones to break even.

Knowing the break-even point helps Alex decide whether launching the smartphone is a good business decision and set realistic sales goals.