How to Do a Break-Even Analysis
By Jean Murray. US Business Law / Taxes Expert
Jean Murray has the education and experience to help you become an expert in your small business, and to provide you with information about business legal and tax issues. With an MBA and a PhD in entrepreneurship, she brings almost 30 years of experience and knowledge to these important business subjects.
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DISCLAIMER: I am not a CPA or attorney, and nothing on this site in articles, emails, blog posts, or other communications is intended to be tax or legal advice. The purpose of this site is to provide general information to readers. No claim is made regarding the accuracy or legal status of information on this site. Federal, state, and local laws and regulations change, and every business situation is unique. Readers should not take action on any tax or legal matter without reviewing options with a tax advisor or attorney.
But you should have this information to help you determine the optimum sales price for each product, to reach maximum revenue by setting the price at the point
where revenue is at its highest.
Here are the steps to take to determine break-even:
- Determine Variable Unit Costs.
Determine the variable costs of producing one unit of this product. Variable costs are those costs associated with making the product or buying it wholesale. If you are making a product. you will need to know the cost of all the components that go into that product. For example, if you are printing books, your variable unit costs are paper, binding, and glue for one book, and the cost to put one book together. Let's say you calculate your unit variable cost at $11.50.
- Determine Fixed Costs
Fixed costs are costs to keep your business operating, even if you didn't produce any products. To determine fixed costs, add up the cost of running your factory for one month. These costs would include rent or mortgage, utilities, insurance, salaries of non-production employees, and all other costs. In other words, fixed costs are all costs of your business except those directly related to producing your products. Let's say you determine your monthly total fixed cost at $25,000.Source: biztaxlaw.about.com