BreakEven Price Formula (Table of Contents)
What is the BreakEven Price Formula?
The breakeven price is defined as the level of price or amount that the seller of the business should quote that enables him to recover the costs of the business operations. The formula for breakeven price can be described as follows: –
 Fixed costs represent costs that the business or company in manufacturing has to bear in order to make itself sustainable. The fixed costs are independent of the volume of sales that the business generates on a day to day basis. The fixed costs comprise of expenses of utilities, rent, insurance, salaries, fee on services taken, and marketing expense.
 The variable costs are costs that vary basis the nature of the production. The variable costs comprise of expenses of direct labor, supplies expenses and costs on materials.
Explanation of the BreakEven Price Formula
The formula for breakeven price can be explained by using the following steps:
 Step 1: Firstly, divide all costs incurred by the business into variable costs and fixed costs.
 Step 2: Next, determine the production capacity or the volume of the finished goods that the business plans to produce.
 Step 3: Next, divide the fixed costs with the production capacity.
 Step 4: Next, determine the manufacturing supplies, direct labor costs, and supplies expenses.
 Step 5: Now, add the segregated components of variable costs to arrive at the total variable costs per unit.
 Step 6: Now, add the resulting value in step 3 with the resulting value in step 5 to arrive at the breakeven price.
How to Calculate Breakeven Price? (With Excel Template)
Below are the examples of the Breakeven price formula.
Breakeven Price Formula Example #1
Let us take the example of a business restaurant. The restaurant business incurs an expense of $3,000 on rental expenses. It has to bear $5,000 on account of salaries and $500 on accountant fees on tallying sales achieved by the restaurants.
The business has the capability to cater to a footfall of 1,500 people. It incurs an expense of $30 per unit on account of procuring food supplies. It has to pay for $80 per unit on account of liquor. Help the management determine the breakeven price for the business.
Solution:
Use the belowgiven data:
Determine the fixed costs as displayed below: –
Calculation of Fixed Cost can be done as follows:
Fixed Cost = $3,000 + $5, 000 + $500
Fixed Cost will be:
Fixed costs = $8,500
Determine the variable costs as displayed below: –
Calculation of Variable Cost can be done as follows:
Variable Cost =$30 + $80
Variable Cost will be:
Variable Cost = $110
Determine the breakeven price as displayed below: –
BreakEven Price = ($8,500 / 1,500) + $110
BreakEven Price will be:
Breakeven Price for the Business = $115.67
Therefore, the business has to sell at the breakeven price of at and above $115.67 per customer order to sustain and to recover over the costs.
Breakeven Price Formula Example #2
Let us take the example of a mediumscale furniture business which specializes in making new chairs. The business has determined that the variable costs per unit are $200. The business additionally has to bear fixed costs of $10,000.
The business generates 2,000 units of chairs as per its production capacity. Help the management of the business determine the breakeven price for the business.
Solution:
Use the belowgiven data for the calculation of breakeven price:
Determine the breakeven price as displayed below: –
BreakEven Price = (($10,000 / 2,000) + $200)
BreakEven Price will be:
BreakEven price for the business = $205
Therefore, the business has to sell at the breakeven price of at and above $205 to sustain the costs of producing 2,000 new chairs.
BreakEven Price Formula Example #3
Let us take the example of a manufacturing business that manufactures shoes. The business incurs Direct Labor expense of $40 per pairs of shoes. It additionally incurs direct materials expense of $55 per pair of shoes and $35 as the costs on manufacturing. The business on average produces 10,000 pairs of shoes.
The business additionally incurs fixed costs of $30,000. Help the management determine the breakeven price for the business.
Solution:
Use the below data for the calculation of the breakeven price.
Determine the total variable costs incurred by the business: –
Total Variable Cost = $40 + $55 + $35.
Total Variable Cost = $130.
Determine the breakeven price as displayed below: –
BreakEven Price = ($30,000 / 10,000) + $130
BreakEven Price = $133
Therefore, the business has to sell at the breakeven price of at and above $133 to sustain the costs of the manufacturing business.
BreakEven Price Calculator
You can use this BreakEven Price Calculator.
Fixed Cost  
Production Volume  
Variable Cost  
BreakEven Price Formula  
BreakEven Price Formula = 
 

Relevance and Uses
 Breakeven analysis is one of the crucial topics in management and cost accounting. A breakeven price helps in the calculation of price that the business has to offer to its customers for making a profit and cover its cost. In a simpler sense, it helps in the overall assessment of the situation of profitability for the business or any new projects undertaken.
 It can be referred to as the methodology wherein different price levels and cost levels are compared to arrive at the best pricing model for the business to attain good levels of profitability.
 The breakeven price analysis, therefore, can be regarded as an objectivebased analysis of profitability. It can be utilized to determine the pricing levels for a new project in pipelines for an existing business and therefore it is one of the components of the project management.
 This analysis is regarded as a critical analysis mechanism because it helps the business know how much sales it should achieve to cope up with rising fixed costs and variable costs.
 It helps the marketers to develop an effective marketing strategy as they know the pricing model as per the analysis performed and hence focus their efforts on getting the best results or sales for the business.
 Comprehensive analysis of costs with respect to sales with a derivation of a good breakeven model can make an entry for new participants into the markets difficult as well as it could make existing competitors go out of business.
Recommended Articles
This has been a guide to the breakeven price formula. Here we discuss how to calculate breakeven price along with practical examples and downloadable excel template. You can learn more about financial analysis from the following articles –
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