Total Revenue Break Even Point Formula

The cash break even point may be defined as that point of sales volume at which total revenue is equal to total cash cost.

Total revenue break even point formula. The contribution margin per unit can be calculated by deducting variable costs towards the production of each product from the selling price per unit. There are pragmatic reasons why an entrepreneur needs to run such an analysis for their business. Break even is the point at which revenue and total costs are the same meaning the business is making neither a profit nor a loss. How to calculate for break even point.

Break even point analysis is a measurement system that calculates the margin of safety by comparing the amount of revenues or units that must be sold to cover fixed and variable costs associated with making the sales. In other words it s a way to calculate when a project will be profitable by equating its total revenues with its total expenses. To compute for the break even point in units the following formula is followed. Break even analysis refers to the identifying of the point where the revenue of the company starts exceeding its total cost i e the point when the project or company under consideration will start generating the profits by the way of studying the relationship between the revenue of the company its fixed cost and the variable cost.

At this point cash contribution which is calculated after making adjustment for variable portion of depreciation etc equals the cash fixed cost i e fixed cost excluding depreciation and deferred expenses. Why is the break even point formula so cardinal. The break even level of output informs a business of how many. There are two ways to compute for the break even point one is based on units and the other is based in dollars.

First things first a break even point shows when the total amount of revenue derived from actual sales equals the total costs of running the business. There is no net loss or gain and one has broken even a profit or a loss has not been.