Breakeven Analysis: Tutorial

Assuming you already know the price of your product, a typical Breakeven Analysis requires:
-- to determine the Variable cost ratio,
-- to determine the Breakeven points,
-- to draw a graph.
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1) Variable Cost Ratio.
First, you need to determine your variable costs.
For instance, you decide to sell cookies next summer.
You determine that each batch of 100 cookies uses:

-- 2 units of flour at $ 2.00 per unit
-- 1 unit of chocolate chunks at $ 2.00 per unit
-- 12 eggs at $ 0.10 each
-- 10 cookie-boxes at $ 0.20 each
-- 4000 watts of electricity at $ 0.20 a Kilowatt

All these variable costs total:
2 x 2 + 1 x 2 + 12 x 0.10 + 10 x 0.20 + 4 x 0.15 = $ 10.00

You set the price for a box of 10 cookies to $ 4.00, or $ 40.00 for 100 cookies.

Hence, for 100 cookies:

2) Breakeven Points.

Your next step is to determine the amount of fixed costs per year.

In the cookies venture example, you need a kitchen at $ 10,000.00 that should last for two years, a car to deliver the cookies ($ 5,000.00 per year in maintenance costs, gas, loan payments), and a point of sale (a shop from where to sell the cookies) that you rent for $ 2,000 per month.

All these fixed costs amount, on a yearly basis, to:
10,000 / 2 + 5,000 + 2,000 x 12 = $ 34,000

3) Breakeven Graph.

To draw a Breakeven graph:

Draw the total cost curve.


1. When no single unit is sold, total costs equal fixed costs (A).
2. At the breakeven point (B), when units are sold,
   total costs equal .
3. The line going trough these two points A and B is the total cost curve.

Draw the total revenue curve.


1. When no single unit is sold, there are no revenues(C).
2. At the breakeven point (B), when units are sold,
   total revenues equal .
3. The line going trough these two points C and B is the total revenue curve.

Download our spreadsheet for a dynamic breakeven graph.

You're done!

Javascript breakeven tutorial v 2.0b - Latest revision: 4 June 2005

http://businesstools.org/breakeven/breakeven.html