A business breaks even when its total revenue equals its total costs. The tool below works out the break-even output from three inputs, draws the chart and shows how sensitive the answer is. Contribution is the key idea: each unit sold contributes price minus variable cost towards covering fixed costs.
It supports calculating contribution, reading a break-even chart and testing the assumptions behind a break-even conclusion. It sits in the learning tools section. Nothing you enter is saved or sent.
How do I use the tool?
- Enter the selling price per unit, which must be above zero.
- Enter the variable cost per unit and the total fixed costs, each zero or more.
- Optionally enter expected sales in units. This is used for the margin of safety. Leave it blank to skip it.
- Press Calculate. Use Reset to return to the starting example.
If the price is not above the variable cost, the tool explains that there is no positive, finite break-even output. If fixed costs are zero, it notes that break-even is 0 units because every unit already contributes.
How do I read the result?
- Contribution per unit: price minus variable cost, with the working shown.
- Break-even output: fixed costs divided by contribution, in units. When the answer is not a whole number, the tool also shows the next whole unit, because you cannot sell part of a unit.
- Break-even sales revenue: break-even units multiplied by the price.
- Margin of safety: expected sales minus break-even, or a message that expected sales are below break-even, so the plan makes a loss.
- Graph: revenue (rising from zero), total cost (starting at the fixed cost level) and a dashed fixed-cost line. The dot where revenue meets total cost is break-even.
- Sensitivity table: break-even after price, variable cost or fixed cost each rises or falls by 10%, one at a time.
Worked example with the starting figures
The tool opens with a price of 20, variable cost of 12, fixed costs of 1,000 and expected sales of 200 units.
Contribution: 20 − 12 = 8 per unit.
Break-even output: 1,000 ÷ 8 = 125 units. Break-even revenue: 125 × 20 = 2,500.
Margin of safety: 200 − 125 = 75 units, which is 37.5% of expected sales.
Sensitivity: raising the price by 10% to 22 gives contribution 10 and break-even of 100 units. Lowering it to 18 gives contribution 6 and break-even of 166.67 units. Raising variable cost to 13.2 gives 147.06 units. Raising fixed costs to 1,100 gives 137.5 units.
The price change moves break-even most, because it changes contribution by a quarter either way.
What mistake does the tool help me catch?
A common slip is dividing fixed costs by the price: 1,000 ÷ 20 = 50 units. That would be right only if each unit had no variable cost. Here each unit must first pay its own 12, so only 8 is left to cover fixed costs.
Reading the chart, 50 units is where revenue passes the fixed-cost line, not where it passes total cost.
Another slip is treating the break-even point as a forecast. It is a calculation under assumptions, which is why testing the assumptions behind a break-even conclusion is a skill of its own.
Assumptions and limits
- One product, with a constant price and constant variable cost per unit.
- Fixed costs do not change over the range shown, and everything made is sold.
- If the price is not above the variable cost, there is no positive, finite break-even output under this model.
- Real businesses have changing prices, step costs and several products. Treat the result as a simple model, not a forecast. All figures are fictional.
Where to go next
Practise classifying fixed and variable costs in context and explaining a margin of safety, then work through the costs, revenue and break-even mixed practice. The whole topic is laid out in Costs revenue and break-even.
If you would like a teacher to check your chart reading and written comments, one-to-one Business tuition can use your own exam-style questions as the starting point.