Discussion Week 5

Page 1 of 1 Accounting III

©2017 South University

Breakeven Point Breakeven Point. The breakeven point is the point when the profit of the company is equal to zero. It is the point when sales equals fixed cost and variable cost. There are two different methods that can be used to calculate the breakeven point: the equation method and the contribution margin method. The equation method formula is sales equal variable cost plus fixed cost plus zero. The contribution margin method takes the fixed expenses and divides it by the unit contribution margin to determine the breakeven point in units. If you want to determine the breakeven point in sales dollars you will take the fixed expenses and divide it by the contribution margin ratio. Contribution margin ratio is found by taking the contribution margin and dividing it by the sales. We can also calculate the breakeven point with profit that a company wants to make by plugging in the desired profit into the breakeven formula. This allows companies to have an idea of the sales they need to have to make their desired profit. You can also include a margin of safety which shows the changes and profits that can be made and still breakeven.