Breakeven Analysis in Excel
Breakeven analysis in Excel using the variables
like contribution margin, fixed costs and variable cost is quick and
easy.
A company is supposed to break even when the total expenses equals the
total revenues. It can also be defined as the point where the net
profit is zero, i. e. the company has neither made any profits nor
incurred any loss.
We have also calculated the breakeven point
using: break even point = fixed cost / contribution margin per unit
And contribution (per unit) = selling price
(per unit) - variable cost (per unit)
Terms used in the Break-Even Analysis:
Unit Price:
The amount of money charged to the customer for each unit of a product
or service.
Unit Sales:
Number of units of the product projected to be sold over a specific
period of time.
Variable Unit Cost:
Costs that vary directly with the sales and production of one
additional unit. Example, commission on sales.
Fixed Cost:
The sum of all costs required to produce the
first unit of a product. Example,
administration costs.
Total Variable Cost:
The product of unit sales and variable unit cost.
(Unit Sales * Variable Unit Cost )
Total Cost:
The sum of the fixed cost and total variable cost for any given level
of production and sales.
(Fixed Cost + Total Variable Cost )
Total Revenue:
The product of expected unit sales and unit price.
(Unit Sales * Unit Price )
Net Profit (or Loss):
Total Revenue - Total Costs
Break even analysis depends on the following
variables
The fixed production costs for a product.
The variable production and sales costs for a
product.
The product's unit price.
The product's expected unit sales.
Another way to look at the break-even point is
that it is the point at which your product stops costing you money to
produce and sell, and starts to generate a profit for your company.
References:
About Breakeven
Wikipedia
More about breakeven
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