Break-even analysis
1 min read
Updated 29 Sep 2026
3 views
AI summary
How many sales you need before you start making a profit.
3 sections
Key terms
- Fixed costs: don't change with sales (rent, salaries, interest, depreciation).
- Variable costs: change with each unit sold (material, freight out, commission).
- Contribution = Selling price − Variable cost (per unit).
- P/V ratio = Contribution ÷ Sales × 100.
Formulas
| Measure | Formula |
|---|---|
| Break-even units | Fixed costs ÷ Contribution per unit |
| Break-even sales (₹) | Fixed costs ÷ P/V ratio |
| Sales for a target profit | (Fixed costs + Target profit) ÷ P/V ratio |
| Margin of safety | Actual sales − Break-even sales |
Example
Price ₹500, variable cost ₹300 → contribution ₹200, P/V ratio 40%. Fixed costs ₹4,00,000 a month.
- Break-even = 4,00,000 ÷ 200 = 2,000 units (₹10 lakh sales).
- For ₹1 lakh profit: (4,00,000 + 1,00,000) ÷ 40% = ₹12.5 lakh sales.
GST is not part of price or cost here if you claim ITC. Use prices and costs excluding GST.
PreviousProfitability ratios: GP and NP margin, ROCE, ROE Next in Financial Statements Month-end closing checklist
Was this guide helpful?