You are starting a business and as part of your business plan you need to develop a break-even analysis. Your fixed costs (overhead) associated with your store are $1,000,000 annually, and your selling price per item is $2,500. If you have a labor cost of $500 per unit, marketing costs of $250 per unit, and other variable costs of $500 per unit, what is your break-even point of sales?
What will be an ideal response?
The break-even point is the sales volume needed to achieve a profit of zero. The formula for the break-even point is fixed costs divided by the contribution margin (sales price per unit ? variable costs per unit). Taking $1,000,000 and dividing by $1,250 ($2,500 sales price ? $1,250 variable costs) gives you a break-even sales number of 800 units.
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What will be an ideal response?
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