Course Outline
Join PRO

How do you calculate the break-even point in terms of sales?

Author:
Harold Averkamp, CPA, MBA

Definition of Break-even Point in Sales Dollars

The break-even point in sales dollars can be calculated by dividing a company’s total fixed expenses by the company’s contribution margin ratio.

Definition of Contribution Margin Ratio

A company’s total contribution margin in dollars is the total net sales minus the total amount of variable expenses. Dividing the contribution margin in dollars by the total amount of net sales is the contribution margin ratio.

Example of Break-even Point in Sales Dollars

To illustrate the break-even point in sales dollars, let’s assume that a company has fixed expenses of $100,000 per year. The variable expenses are estimated to be 80% of the net sales. This means that the contribution margin ratio is 20% of net sales.

Since only 20% of the sales dollars are available to cover the $100,000 fixed expenses, the company will need to have $500,000 of net sales ($100,000 divided by 20%). At $500,000 of net sales, the amount of variable expenses will be $400,000 (80% X $500,000). That leaves $100,000 to cover the $100,000 of fixed expenses. Hence, at $500,000 of net sales the company will be at the break-even point, which is the point where sales will be equal to all of the company’s expenses. This is the point where the net income will be zero.

Join PRO to Track Progress
Must-Watch Video

Learn How to Advance Your Accounting and Bookkeeping Career

  • Perform better at your current job
  • Refresh your skills to re-enter the workforce
  • Pass your accounting class
  • Understand your small business finances
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus