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Tools for Problem Solving
How to Calculate Break-Even Point
- Select a text field by pointing and clicking your mouse.
- Enter data in the selected field. Press [Enter] to scroll through fields.
- Click the "=" button to calculate profitability and break-even point. Results will be displayed in the text window.
The Profitability and Break-Even Point Equations
The variables used to calculate profitability and break-even point are:
Variable Cost(V)-- direct expenses of producing each product.
Fixed Cost(F)-- estimated expenses over the production run.
Income(P)-- sum of the selling price and waste recovery.
Profitability is a productivity index calculated as the ratio of income and production cost:
Profitability = P / V
The break-even point is the number of units that must be made and sold
before cost equals income. Or, the point when profit begins.
Break-Even Point = F / (P-V)
The profitability and break-even analysis can be used to help planners make decisions. Try out your ideas to see if they are feasible!
Go to Step 6: System Economics of the Manufacturing System Design unit to learn more about manufacturing system economics.
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