Break-Even Sales Formula: Calculate Units and Sales Dollars

Check that the period and cost assumptions match

Fictional product has a selling price of $45 per unit, variable cost of $27 per unit and fixed costs of $6,300 for one month. Assume every unit produced in the exercise is sold, prices and unit variable costs stay constant, fixed costs stay unchanged within the illustrated range and there are no additional costs or sales reductions.

The SBA’s single-product break-even guide supplies formulas for units and sales dollars. Here, the cost classification and period are given; this page does not determine how a real organization should classify or report its costs.

Solve in units and cross-check in dollars

Round whole units for a changed fixed-cost case

Change only fixed costs to $6,400. The continuous calculation gives $6,400÷$18≈355.56 units. If only whole units can be sold, round up to 356. At 355 units, contribution is $6,390, leaving a $10 shortfall; at 356 it is $6,408, exceeding fixed costs by $8.

The continuous sales-dollar break-even amount is $6,400÷0.40=$16,000. Selling 356 whole units at $45 produces $16,020. Those amounts differ because $16,000 does not correspond to a whole number of units at that price.

Explain when the simple formula stops giving a usable answer

If variable cost becomes $45 at the same $45 price, contribution per unit is zero. With positive fixed costs, no finite number of units covers those costs under the supplied model. Dividing by zero does not give a valid break-even quantity. A negative contribution would reduce the amount available to cover fixed costs as units increase.

If a second product is introduced, its price and variable cost cannot simply be inserted into the first product’s formula. A multi-product analysis needs additional assumptions about the mix. Likewise, a capacity ceiling or a step change in fixed costs can invalidate the constant-cost range used here.

Write the answer with the assumptions attached

Completed note: “Under the supplied one-month, single-product assumptions, break-even is 350 units or $15,750 of sales. This means modeled revenue equals the modeled costs; it does not establish demand, cash timing or financing needs.” Keep those distinctions when explaining a work-sample answer.