How break-even is worked out
Every unit sold earns its contribution, the selling price less the variable cost of making and selling it. Fixed costs have to be covered by total contribution before any profit is made, so break-even units = fixed costs ÷ contribution per unit and break-even revenue = fixed costs ÷ contribution margin ratio. Units needed for a target profit = (fixed costs + target profit) ÷ contribution per unit.
Margin of safety and operating leverage
Margin of safety is how far expected sales can fall before the business makes a loss, as a share of expected sales. The degree of operating leverage (contribution ÷ operating profit) shows how sharply profit responds to sales: at 4×, a 10% fall in sales cuts operating profit by about 40%. High fixed costs mean high leverage and a thinner margin of safety.
More than one product
With several products, the break-even point depends on the mix. The calculator weights each product's contribution by its share of units sold to get a weighted contribution per unit, then splits the break-even volume back by mix. If the mix shifts towards low-margin lines, break-even rises.
Common questions
Should depreciation and interest be in fixed costs?
For an accounting break-even, yes: include depreciation and interest so that break-even means zero profit before tax. For a cash break-even, leave out depreciation and other non-cash costs, and add loan principal repayments if you want the cash needed to service debt.
What if some costs are semi-variable?
Split them. Power, maintenance and supervision often have a fixed base and a part that moves with output. Put the base in fixed costs and the rate per unit in variable cost.
Is the target profit before or after tax?
Before tax. For an after-tax target, divide it by (1 − tax rate) before entering it.