How to Calculate Break Even Volume

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Break even volume is the number of units of a product that you have to sell in order for the sales revenue to equal total costs. In many businesses, there are startup costs and then unit costs. There is also revenue from sale of a product. When these balance, you have reached the break even volume

  • Compute start-up costs. These are the costs of such things as factories, materials, salaries, and so on. If you are starting a new business, they will also include incorporation fees. For example, assume start-up costs are $100,000.

  • Compute unit costs. This is the additional cost, per unit, needed to produce your product. For example, assume that it costs $1 per unit to produce your product.

  • Calculate revenue. This is the amount you collect for each unit of your product sold. For example, you might sell your product for $2 per unit.

  • Compute profit per unit. This is the revenue per unit minus the cost per unit. In the example, it is $1.

  • Divide the start-up costs by the profit per unit. This is the break even volume. In the example, $100,000/$1 means you have to sell 100,000 units to break even.

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