Course Outline
Join PRO

Break-even Point (Crossword Puzzles)

Author:
Harold Averkamp, CPA, MBA

Break-even Point #1

Open Online Open PDF

Break-even Point #2

Open Online Open PDF

Knowing how costs change as volume or activities change is helpful when making business decisions. For example, if most of a product's costs are fixed, then a company's total costs will increase only slightly when more units are produced and sold. Understanding this cost behavior might lead to special promotions that will increase profits and sales.

Costs and expenses that do not increase with reasonable increases in volume are known as fixed costs. Examples of fixed costs are the salaries of managers, property tax, and depreciation.

Costs and expenses that increase in total as volume increases are variable costs and expenses. A product's direct materials, direct labor, and some overhead costs are variable costs. Two examples of variable overhead costs are the electricity to power the equipment in the manufacturing process and factory supplies.

Some costs are mixed costs, which means partly fixed and partly variable. An example might be maintenance costs. You can determine how much of a mixed cost is fixed and how much is variable by using several techniques. One technique is to plot the costs on a graph where the y-axis is the total cost and the x-axis is the amount of volume or activity. If the plotted points form a straight line, you can extend the line through the y-axis. The point where the line intersects the y-axis is the amount of the fixed cost.

Another technique is the high-low method. With this method, you compare the total cost at the highest level of activity to the total cost at the lowest level of activity. The variable cost rate is the difference in total cost divided by the difference in the volume of activity.

A more sophisticated technique for separating the fixed and variable costs in a mixed cost is regression analysis. This technique computes the best fitting line through the plotted points by utilizing the least-squares method.

Break-even analysis utilizes the concept known as contribution margin. Contribution margin is defined as sales dollars minus variable costs and variable expenses. If a product sells for $10 and its variable costs and variable expenses are $6, the contribution margin is $4 per unit. The formula for the break-even point in units of product is the total fixed costs divided by the contribution margin per unit. For example, if the total fixed costs are $40,000 and the contribution margin per unit is $4, the break-even point is 10,000 units ($40,000 divided by $4).

Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
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