Break-Even Point (BEP) Calculation

Break-Even Point (BEP) is the level of sales at which Total Revenue equals Total Cost. At this point, the business earns no profit and incurs no loss. The contribution earned from sales is exactly equal to the fixed costs.

At BEP:

Total Sales=Total Cost

$$\text{Contribution}=\text{Fixed Cost}$$

1. Break-Even Point in Units

The break-even point in units indicates the number of units that must be sold to cover all fixed and variable costs.

Formula: BEP (Units) = Fixed Cost / Contribution per Unit​

Where,

Contribution per Unit = Selling Price per Unit − Variable Cost per Unit

Illustration

• Selling Price per Unit = ₹100
• Variable Cost per Unit = ₹60
• Fixed Cost = ₹80,000

Step 1: Calculate Contribution per Unit

Contribution per Unit = ₹100 − ₹60 = ₹40

Step 2: Calculate BEP in Units

BEP = ₹80,000 / ₹40 = 2,000 units

Answer: The company must sell 2,000 units to reach the break-even point.

2. Break-Even Point in Sales Value

The break-even point in sales value indicates the amount of sales revenue required to cover all costs.

Formula: BEP (Sales Value) = Fixed Cost / P/V Ratio​

Where,

P/V Ratio = ContributionSales × 100

Step 1: Calculate P/V Ratio

P/V Ratio = (₹40₹ / 100) × 100 = 40%

Step 2: Calculate BEP in Sales Value

BEP = ₹80,000 / 40%

=₹80,000 / 0.40

$$=₹2,00,000$$

Answer: The company must achieve sales of ₹2,00,000 to break even.

Alternative Formula for BEP in Sales Value

BEP (Sales) = BEP (Units) × Selling Price per Unit

Using the above example:

=2,000 × ₹100

=2,000 

Summary