Break even: the minimum level of units that must be sold for revenue to cover total costs exactly
The break even level of output = fixed costs/contribution per unit
Contribution per unit = selling price per unit – unit variable cost per unit
Example: Eg if fixed costs are £10,000 and each unit contributes £10, then the break even output level = £10,000/£10= 1,000.
1,000 items must be sold for total costs to be covered and neither a profit or loss made
Calculate the break even point for cricket bats
Contribution per unit = selling price per unit – unit variable costs $20 - $4 = $16 per unit
Breakeven point = fixed costs/contribution per unit 200,000 / 16 = 12,500 cricket bats