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Break even

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