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Break-Even Analysis Walkthrough

Table output Has example

Know how much you must sell to cover costs.

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Walk me through a break-even analysis. Fixed monthly costs: [FIXED_COSTS]. Price per unit or average sale: [PRICE]. Variable cost per unit or sale: [VARIABLE_COST]. Planned sales volume: [PLANNED_VOLUME].

Explain in plain language and compute: contribution per unit (price minus variable cost); contribution margin ratio; break-even units (fixed costs / contribution per unit) and break-even revenue; margin of safety (planned sales minus break-even, as a percent of planned sales); and profit at planned volume.

Show a sensitivity table varying price by minus 10, 0, plus 10 percent and variable cost by plus 10, 0, minus 10 percent, with break-even units in each cell. Add what the numbers suggest in everyday terms, three questions to test the assumptions (are my fixed costs truly fixed? what about discounts?), and a note on multiple products (use a weighted average contribution). If inputs are missing, ask before computing. Not accounting advice.

Finish with a worked one-paragraph conclusion in the form 'You need to sell X units a month to cover costs; at your plan you are Y above or below that', and state which single input you would verify first because it moves the answer most.

Describe the figures and conclusions as estimates, using only the inputs in this message. Take this as working support rather than accounting, tax, legal or investment advice. Run the results past a qualified accountant or adviser who understands [JURISDICTION] before you depend on them.

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Fixed costs 6,000 a month. Price 50. Variable cost 20. Planned volume 300 units.
Contribution per unit = 50 - 20 = 30. Contribution ratio = 30 / 50 = 60 percent.
Break-even units = 6,000 / 30 = 200. Break-even revenue = 200 x 50 = 10,000.
Margin of safety = (300 - 200) / 300 = 33 percent.
Profit at plan = 300 x 30 - 6,000 = 3,000.
Sensitivity: price 45 gives contribution 25 and break-even 240 units; price 55 gives 35 and 171 units. If variable cost rises to 22, break-even is 6,000 / 28 = 214 units.
Check whether discounts and the fixed cost assumption hold. Planning support only [VERIFY with an accountant].

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