Breaking-Even

on a Target
Profit
Prepared by Eric Acchitelli

The Steps
1.
2.
3.
4.

Understanding the Basics

Calculate Contribution & Unit Contribution
Calculate the Break-Even Point (No Profit)
Calculate the Break-Even Point (Target Profit)

1. Understanding the
Basics
Definitions
o Revenue The amount of money actually received by a company,
without regard to any costs that may be incurred
o Costs the amount of money that is needed to pay for or buy
something
o Fixed Costs Costs that have a constant value regardless of the
volume of production
o Variable Costs Costs that increase or decrease and are directly
traceable to the volume of activity
o Profit The remaining money after accounting for all costs

The Equation

2. Calculate Contribution
& Unit Contribution
The

funds available to the seller of an item after

subtracting the variable costs associated with
it
Unit Contribution The contribution per item
sold
Calculating Contribution and Unit Contribution

Contribution Example
Grandmas

Cookie Company is a small company

that sells cookies by the dozen. If the company
sells 200 dozens for $1600 total and spends
$1000 on supplies every day, what is the
contribution and unit contribution for the cookies?
Solution

3. Calculate the BreakEven Point (No Profit)

Break-Even Point The point, in dollars and
units, at which costs equal revenue.
o Bare minimum goal for a company: We have no profit, we have no
losses; we have only broken even.

Calculating the Break-Even Point*

[Useless on its own]

Break-Even Point Example

Every

day, Grandmas Cookie Company spends

$75 in fixed costs (electricity, climate control in
the shop, etc.). How many dozens would the
company need to sell in order to break even
every day, and how much revenue does this bring
in?
Solution

4. Calculate the BreakEven Point (Target Profit)

Most

companies dont operate on a break-even

principle
o Want to spend money to make more money

Calculate the Target Profit Point

Target Profit Example

Suppose

Grandmas Cookie Company wants to

make a profit of $225 every day. How many units
would the company have to sell to reach that
profit impact?
Solution

A Summary
1. Understanding the Basics
a.

2. Calculate Contribution & Unit Contribution

a.
b.

3. Calculate the Break-Even Point (No Profit)

a.
b.

4. Calculate the Break-Even Point (Target Profit)

a.
b.

Any Questions?
Thank you for your time.

Works Cited
Cost. Merriam-Webster. Merriam-Webster, Inc., n.d.
Web. 10 Oct. 2013
http://www.merriam-webster.com/dictionary/cost .
Heizer, Jay H., and Barry Render. Break-Even
Analysis."Operations Management. 10th ed. Upper
Saddle River, NJ: Prentice Hall, 2011. 292- 96. Print.
Revenue. Investopedia. ValueClick, Inc., n.d. Web. 10 Oct.
2013.
http://www.investopedia.com/terms/r/revenue.asp .
Transparent Cookie. Digital image.Radically
Transparent.
Tumblr, July 2013. Web. 10 Oct. 2013. http://
24.media.tumblr.com/e6282d2fce7724e9cb2
c7dfec35e2269/tumblr_mpuwsintBC1sn8q7mo1_500. png.

Breaking-Even for
Multiple Products
Companies

often have a line of products from

which they want to profit
Calculating Break-Even Point for Multiple Products
(n) at a Target Profit