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The Mystery of Calculating

What in the world is it?. It is the point at which a company does not make any money. It is the calculation to find out how much a company would have to sell in order to just break even -- in order to just pay their costs (variable and fixed).. Example. $6,000. If sales for the month equalled $6,000 and all costs equalled$6,000 - Breakeven point would be $6,000.

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The Mystery of Calculating

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    1. The Mystery of Calculating The Breakeven Point

    2. What in the world is it? It is the point at which a company does not make any money. It is the calculation to find out how much a company would have to sell in order to just break even -- in order to just pay their costs (variable and fixed).

    3. Example

    4. No Profit Realized... OK -- That is fairly simple. Now -- how do we calculate that? Watch each slide ...

    5. Step One…Calculate Contribution Margin Example: Information Needed for Calculations: Picture Framing Store: Net Sales $80,000, Variable Costs $30,000, Fixed Costs 25,000. $80,000 - $30,000 = $50,000 (CM) CM - should be enough to cover fixed costs and of course profit.

    6. Calculating CM

    7. Step 2, Calculating the Contribution Margin Rate (CMR). Step: #2 - Use the CM to calculate the CMR Contribution Margin / Net Sales = Contribution Margin Rate $50,000 / $80,000 = .625%

    8. Step 3, Calculating the Sales Dollar Breakeven Point If we know that the Contribution Margin takes 63% of sales, and we know what the Fixed Costs are, then we can do the final calculation. Total Fixed Costs / CMR = Sales Dollar Breakeven Point $25,000.00 / 62.5% = $40,000.00 The business has to sell $40,000.00 in order to breakeven. 37.5% of $40,000.00 will go towards Variable Costs or $15,000.00 62.5% of $40,000.00 will go towards Fixed Costs or $25,000.00 0 left over for a profit

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