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# How to Determine a Breakeven Point

In business, a company's break-even point occurs when its total revenue equals its total costs.

### Instructions

• Step 1: Identify the fixed cost Identify the fixed cost to produce the first unit of a product. For example, if the start-up cost is \$20 to rent space for the first month of business, the fixed cost is \$20.
• Step 2: Identify the selling point Identify the selling point. If the manufacturer plans to sell each product for \$1, the selling point is \$1.
• TIP: Sales can be usually be increased by lowering the selling point, but that raises the break-even point.
• Step 3: Identify the variable unit cost Identify the variable unit cost. If it costs the manufacturer \$0.57 to make each product, the variable unit cost is \$0.57.
• Step 4: Calculate the break-even point Calculate the break-even point using the formula: Break-Even Point equals Fixed Cost divided by the Unit Price minus the Variable Unit Cost.
• FACT: Marketing managers use break-even points to evaluate profit potential and risks associated with marketing strategies.

### You Will Need

• A fixed cost
• A selling point
• A variable unit cost