Where cost and revenue meet
Break-even analysis separates costs into fixed and variable parts and finds the sales volume where total revenue equals total cost. Below that point the business loses money; above it each extra sale adds profit.
It is a planning tool, not a forecast. It answers how much you must sell, and how sensitive that answer is to price and cost.
Key points
- Fixed costs do not change with volume in the short run.
- Variable costs rise with each unit sold.
- The break-even point is where profit is exactly zero.
The break-even relationships
CM = Price − Variable cost per unit
What each sale contributes towards fixed costs and profit.
Break-even units = Fixed costs ÷ CM
The sales volume at which profit is zero.
Break-even revenue = Break-even units × Price
The sales value needed to cover all costs.
MoS = (Expected units − Break-even units) ÷ Expected units
How far sales can fall before the business makes a loss.
The contribution margin ratio is the margin divided by price. It tells you what share of every taka of sales is left after variable costs.
A worked example
A cafe has monthly fixed costs of ৳90,000. The average bill is ৳180 and variable cost per order is ৳70, so the contribution margin is ৳110. Break-even is ৳90,000 ÷ ৳110 = 818.18 orders, or about 27 orders a day.
At 1,200 orders a month, profit is 1,200 × ৳110 − ৳90,000 = ৳42,000. Margin of safety is (1,200 − 818.18) ÷ 1,200 = 32%, so sales could fall by roughly a third before the cafe makes a loss.
Using it well
Lower the break-even point by raising price, cutting variable cost, or reducing fixed cost. Each lever has consequences: a higher price may reduce demand, and cutting fixed costs may reduce quality or capacity.
Run the analysis across a range of prices rather than one. The pattern matters more than the single answer.
Key points
- Price and variable cost set the contribution per unit.
- Fixed costs set how many units must be sold.
- Margin of safety shows how much room there is to be wrong.
02 / Calculate
Find the break-even point.
Set fixed costs, price, and variable cost. The chart shows where revenue crosses total cost.
Fixed costs of ৳90,000 a month, a ৳180 average bill, and ৳70 variable cost per order.
Contribution margin
৳110.00
CM ratio
61.1%
Break-even revenue
৳1.47 L
Break-even volume
818units
Each unit contributes ৳110.00. You need 818 units to cover ৳90,000.00 of fixed cost.
Profit at expected units
৳42,000.00
Margin of safety
31.8%
Revenue against total cost
Where the gold revenue line crosses the navy cost line is the break-even volume.
This model assumes one product, a constant price, and a constant variable cost per unit. Real demand falls as price rises.
03 / Apply
Pricing a new online course
A teacher plans a course with ৳50,000 of fixed production cost and ৳400 of variable cost per enrolment. She expects 60 students and is considering a price of ৳2,500 or ৳4,000.
The assumptions
- Variable cost covers payment fees and materials per student.
- Demand is assumed to be the same at both prices for this exercise.
- Fixed costs are incurred before any enrolment.
What to take away
01
The lower price needs more students to break even.
02
The higher price adds profit but may reduce demand in reality.
03
Margin of safety shows how much demand can fall.
Your turn
0 of 4 answered
01Question
Fixed costs are ৳90,000, price is ৳180, and variable cost is ৳70. What is the contribution margin per unit?
02Question
Using the same figures, what is the break-even number of orders? Round to two decimals.
03Question
At 1,200 orders, with a ৳110 contribution margin and ৳90,000 fixed costs, what is the monthly profit?
04Question
Which change lowers the break-even volume?
Take it into the Lab
Experiment with the same idea.
The Lab turns this topic into a workspace: change the drivers, watch the statements move, and see the consequence before you commit to a decision.
What-if analysis
Change price, cost, and working capital. Watch margins, return, and risk move together.
Open the labFormula lab
Understand, manipulate, observe, solve, then apply the formula to a decision.
Walk the formulaStatement playground
See how one driver propagates through the income statement, balance sheet, and cash flow.
Open the playgroundSources & further reading
OpenStax · Principles of Finance (free textbook) ↗Educational sample content. Worked examples use hypothetical figures. Dates refer to the note's latest content update.