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# How to Calculate the Operating Breakeven Point

Original post by Matt McGew of Demand Media

The operating breakeven point for a business is the point at which sales revenue covers all of the fixed costs and variable costs but produces no profit for the business. A fixed cost is a cost that does not change for business based on the number of units produced. Rent, insurance and interest expenses are examples of fixed costs. A variable cost, on the other hand, represents a cost that changes based on the production volume. Labor and raw materials are examples of variable costs. You can manually calculate the operating breakeven point for a business with some basic information about the business's fixed costs, variable costs and selling price per unit.

## Contents

### Step 1

Determine the total monthly fixed costs for the operations of a business. For example, assume the total fixed costs for the operations of a business is \$10,000.

### Step 2

Determine the total variable costs for the business to produce a single unit. For example, assume the total variable costs to produce a single unit is \$25.

### Step 3

Determine the selling price for a single unit of the business's product. For example, assume the selling price is \$50.

### Step 4

Subtract the variable cost for a single unit from the selling price. Continuing the same example, \$50 - \$25 = \$25.

### Step 5

Divide the fixed costs by the figure from Step 4. Continuing the same example, \$10,000 / \$25 = 400. This figure represents the number of units the business must sell to break even.

### Step 6

Multiply the breakeven units by the selling price. Continuing the same example, 400 x \$50 = \$20,000. This figure represents the breakeven point for the business based on sales revenue.

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### References

• "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
• "Break Even Analysis"; Michael Cafferky et al; 2010