Break Even Analysis Template
Breaking even is defined as the stage wherein a company's expenses are equal to its total revenues. At the break even point no profits have been made, neither are any losses incurred. The break even analysis is based on comparison of the total and the variable cost with the sales revenue to determine the financial position of the company.
Break Even Analysis Parameters
Some of the parameters that are very important while conducting a break even analysis are:
- Average per unit revenue - This is the profit that you earn after selling every unit of the product. This can be gauged by analyzing your sales forecast.
- Average per unit cost - This is the average cost that of producing one unit of product. This includes the manufacturing cost, transportation cost, marketing cost etc.
- Fixed cost - This is the constant sum of all costs required to produce a product. A change in the value of production does not impact the fixed cost.
Let us take a look at the break even analysis formula to know how we can calculate the break even point of a company.
Break even point = Fixed costs / (Price per unit - variable cost per unit).
Let us take an example to illustrate this. Suppose, your fixed costs include $100 as rent, $20 as insurance and your variable cost which includes the material and productions costs is $10. The price per unit is $12. Then, according to the above formula,
Break even point = (120) / (12-10)
Break even point = 120 / 2
Break even point = 60.
Which means that in order to break even, your company must sell 60 units per month.
Let us take a look at a simple break even analysis template.
(Let us assume that the cost per unit is $1000)
| Company Name | |
| Break Even Analysis for January 2011 | |
| Cost Description | Amount |
| Cost of goods sold | $250 |
| Inventory | $200 |
| Raw materials | $400 |
| Labor | $100 |
| Total Variable Costs | $950 |
| Fixed Costs | |
| Repairs and Maintenance | $1000 |
| Advertising | $300 |
| Rent | $1000 |
| Telephone | $200 |
| Insurance | $250 |
| Taxes | $200 |
| Miscellaneous | $5000 |
| Total fixed costs | $7950 |
| Sales | $1000 |
| Break Even Point | 159 |
Accountants often use the more complex and detailed break even analysis for excel template to calculate the break even point of the organization. Break even analysis is very helpful for people who are thinking about starting a new business as it helps them to calculate the number of units they need to sell in order to break even and once they know this, they can easily figure the time it will take them to start earning profits. There are certain limitations of break even analysis as well. Let us take a look at some of the limitations.
Break Even Analysis Limitations
The break even analysis is totally dependent on numbers, it does not take into account the other factors that affect the productions costs. So, if the numbers are not precise, break even analysis can give you a wrong break even point. It assumes that the output that is produced is successfully sold, but the reality is that not all the output produced is sold, so it can be thought of as 100% accurate. It is static in nature, that is, it can be categorized as a technical analysis and does not take into account the changes that occur on a daily basis.
