Break Even Analysis Template

Ready-To-Use Break-Even Analysis Template

Break-Even Analysis Template in Excel, OpenOffice Calc & Google Sheet to find when your business will break even and start making profits.

With the help of this template, you can calculate the fixed and variable costs applicable to any product or service. It also helps to calculate the break-even point in terms of units and terms of revenue.

Moreover, this template also comes with a graphical representation of break-even that helps you to understand the product as well as its pricing.

What is Break-Even Analysis?

Break-even analysis is a measure examining the margin of safety for a product depending on the cost associated with the production of it and revenues collected.

In simple words, break-even analysis determines how much revenue a business needs to make to pay for the cost of doing business and start earning profit.

It refers to a point in business when total cost equals total revenue. Businesses use this analysis to determine the number of units or dollars of revenue needs to cover all the fixed and variable costs involved in production.

Methods of Break-Even Analysis

You can conduct the Break-Even Analysis  by the 3 following methods:

  1. Algebra or Mathematical Equation Method
  2. Graphic Method
  3. Contribution Margin Method

Equation Method

Under the equation method, the break-even analysis is conducted using the following equation:

Total Revenue (TR) = Total Output (TO) * Price per unit of output (P) 

Where Total Costs (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC)

Total Variable Costs (TVC) = Total Output (TO) * Variable Costs per unit (AVC)

TC = TFC + TO (AVC)

Thus, Break-Even Point (B) = (TR =TC).

By further simplifying the equation we get the following:

B =TFC+ TO (AVC)

When you put the respective values in the above equation, it derives the break-even point for the product or service. We have used this method in our Advanced Break-Even Analysis Template given below.

Graphical Method

In Graphical Method, the user makes a graph explain Break-Even. We need to define the average sale of units per cycle to create a point in the graph where both production and revenue intersect each other.

 

Contribution or P/V Ratio Method

Under this method, the break-even analysis is performed based on the contribution of profit towards the total revenue. The formula for P/V Ratio or Contribution Ratio is as follows:

P/V ratio = (Total Revenue – Total Variable Cost or Contribution Margin / Total Revenue) X 100

What Is Break-Even Point?

The Break-Even Point is the number of units or dollars in revenue when a business equals total cost. In simple terms, this is the point above which the business starts generating profit.

Usually, businesses calculate the Break-Even Point on the linear Cost-Volume-Profit (CVP) Model. This simplifies the calculations and makes short-term projections easy.

Formula To Find Break-Even Point in Terms of Units

BEP (Units) = Total Fixed Costs (TFC) / (Total Variable Cost Per Unit – Sales Price Per Unit)

Example

For Product A, the total fixed cost is $112,700, and the variable cost per unit is $802.50. The product’s sale price is $1,200. Thus the break-even point will be:

BEP for Product A (Units) = $112,700 / ($1,200 – $802.50) = $112,700 / 397.50 = 283.50 units

Formula To Find Break-Even Point in Terms of Revenue

BEP(Revenue) = Total Fixed Cost / Contribution Margin Ratio

Contribution Margin = 1- Variable Cost per Unit / Sales Price X 100

Example

For Product A, the total fixed cost is $112,700, and the variable cost per unit is $802.50. The product’s sale price is $1,200. Thus the break-even point will be:

Applying the above formula:

Contribution Margin Ratio = 802.50/1200 X 100 = 33.13%

BEP(Revenue) = $ 112,700 / 33.13% = $340,226 

Download Break-Even Analysis Template (Excel, OpenOffice Calc & Google Sheet)

We have created 2 Break-Even Analysis Templates; Simple and Advanced, with predefined formulas and functions. Just insert a few details and it will automatically calculate perform Break-Even Analysis for your product or services.

Download your desired format and start using it.

Microsoft Excel OpenOffice Calc Google Sheet

Additionally, you can download other calculator templates like CAGR Calculator, Sum of Years Depreciation Calculator, Straight-Line Depreciation Calculator, Declining Balance Depreciation Calculator, etc.

Feel free to contact us for the customization of this template as per your requirement. We also design new templates based on your needs. You can hire us for our services on Fiverr or directly contact us at info@msofficegeek.com.

This template consists of 2 sheets: Simple Break-Even Analysis Template, and Break-Even Analysis (Advanced).

Simple Break-Even Analysis Template

Simple Break Even Analysis Template

With the Simple Break-Even Analysis Template, you can find the break-even point just by entering 4 details.

Just enter your fixed cost, Variable cost per unit, sale price, and unit sales per month. It will automatically calculate the break-even point in terms of units and sales for you.

Moreover, it also prepares the graph automatically based on data input. Let us understand the working or each section in detail.

Data Input Section

Break Even Analysis

The data input section consists of the following:

Total Fixed Costs
Sales Price per Unit
Variable Cost per Unit
Estimated Unit Sales / Month
Break-Even Point (units)
Break-Even Point ($’s)

Insert the first 4 details and the rest consists of predefined formulas and is auto-calculated.

Break-Even Calculations

Break Even Calculations

This section is consists of predefined formula and prepares the data for the graph. Hence, no need to enter any data in this section.

It consists of the following columns:

Month
Units
Fixed Cost
Variable Cost
Total Cost
Sales
Profit

Under this calculation section, initially the there is a loss as we can see the profit column has a negative number. When the profit reaches 0 it comes to the break-even point. Above that, the product/business starts making business.

Graphical Representation of Break-Even Point

Break Even Analysis

Graphical Representation is a simple graph created with the data in the Break-Even Analysis Calculation section.

As we can see the sale is assumed incremental and constant for every month. Thus, you can see the straight line with an upward trend. The point at which these lines intersect each other is the break-even point as you can see in the image below:

Break-Even Analysis Template (Advanced)

Break Even Analysis

This template consists of detailed calculations for fixed costs and variable costs of the business. This template consists of 4 sections.

Break-Even Analysis Summary

Break Even Analysis

At the top, the template displays the summary. The summary section includes the following:

Total Fixed Costs
Variable Cost per Unit
Sales Price per Unit
Contribution Margin Per Unit
Contribution Margin Ratio
Break-Even Point (units)
Break-Even Point ($’s)

In this section, you only need to enter the sales price per unit. Other details the template will fetch as we add details in the following section.

Contribution per unit is the sales price per unit minus the variable cost per unit. The contribution margin ratio is the contribution margin per unit divided by sales price. It calculates the Break-Even Point in terms of units and revenue based on the above formula.

Cost Calculations

Cost Calculations

Insert applicable fixed costs and variable costs to the product. It should be kept in mind that fixed costs are in total irrespective of production or sale. Whereas the variable costs are applied per unit.

Usually, Fixed costs include the following:

Salaries
Administration
Sales
Supplies
Repair and Maintenance
Advertising
Rent
Utilities
Insurance
Depreciation

You can edit these costs as per your requirement.

Variable costs can be of two types. One is dollar-based and another is percentage-based.

Dollar-Based Variable Costs include:

COGS
Labour
Overhead Expenses
Others

Percentage-Based Variable Costs include:

Commission
Dead Stock
Loss Due to Transportations

Insert those applicable to you. Based on the percentage it adds to the total variable costs. The summary section fetches the data from this section to perform the Break-Even Analysis.

Break-Even Point Calculations

The break-even calculation section auto-populates as it consists of predefined formulas based on the break-even analysis performed in the summary section.

Break Even Calculations

Graphical Representation of Break-Even Point

This section displays the above table in the form of a graph to show the break-even point.

Break Even Analysis

Benefits of Break-Even Analysis

  • Break-Even Analysis helps define the volume of sales required to attain the targeted profit.
  • It also helps businesses to calculate the margin of safety. The margin of safety represents the difference between the sales at the break-even point and the total actual sales. It denotes the last limit to which the sales fall is acceptable and the business has no fear of loss.
  • Break-Even Analysis helps in taking important decisions like either to produce relative components of the finished product or buy from outside.
  • Allows to evaluate the risk of prices below the total costs in difficult times and accepting them with calculated risks.
  • It also helps to determine the sales quantity to offset price reduction due to reasons like competitors or adverse market conditions.
  • Additionally, it helps in evaluating the effects of alternative prices. In other words, it helps see the effect of an increase or decrease in product prices.
  • Furthermore, it helps the management to take decisions regarding adding or removing products.
  • It helps to determine the promotion capacity of the firm based on price analysis. This enables the business to define which product to promote and what schemes they can allow to their customers. It can also provide an overview of the costs of promotion.
  • The break-even analysis also assists in comparing the profitability of multiple branches internally. A branch that has a higher P/V ratio is better than the lower one.

Limitations of Break-Even Analysis

  • Break-Even Analysis ignores production prices. Prices of raw materials, wages, etc are subject to change often. Usually, break-even analysis is done based on past data. Thus, it becomes necessary for us to adjust in the context.
  • Businesses perform break-even analysis considering the current product prices. Generally, product prices change regularly for some products. Sometimes, due to this, we are unable to get the correct estimate of the number of sales to be made to break even.
  • This analysis is performed based on an assumption of constant growth of the products, which is not the actual case. Thus, it just provides estimates and not the actual. Because actual sales will differ and so that break-even quantity also.
  • Break-Even Analysis cannot predict the demand for the product.
  • The accuracy of such analysis depends on the data provided. Wrongly predicted variable costs can lead to futile analysis.
  • Not good for businesses that have multiple products with multiple prices

Frequently Asked Questions

What Is The Difference Between Gross Margin And Contribution Margin?

Gross Margin is the amount of gross profit which is a percentage of Net Sales. It is calculated by subtracting COGS from total sales. As we all know that COGS consists of fixed and variable product costs but selling and administrative expenses are ignored. Whereas Contribution Margin is Net Sales minus the variable product costs and the variable period expenses.

What Is The Contribution Margin Ratio?

The contribution margin ratio denotes the percentage of the selling price that remains after deducting all variable costs and variable expenses.

How Do You Reduce A Company's Break-even Point?

You can reduce a company's break-even point by reducing the fixed costs. Fixed costs do not change with changes in the volume of production or sale. Whereas variable costs increase or decrease with changes in the volume.

If you like this article, kindly share it on different social media platforms. So that your friends and colleagues can also benefit from the same. Sharing is Caring.

Moreover, send us your queries or suggestions in the comment section below. We will be more than happy to assist you.

%d bloggers like this: