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Breakeven Template

A short guide to understanding your cost
Breakeven is a point of no profit or loss. It is the point where the cost of a products equates the revenue.
Amaka is in the business of producing organic skin care for Africans. She has a mini factory where she and her team manufactures hair creams, body lotions, glow oil, bath scrubs, shower gels etc. She would like to know how many units of body oil they needs to sell/produce, so as to cover their cost
The break even point can give her answers
What you need to know about breakeven
Sales price - How much the product is sold to end users. This can be in units
Fixed cost- These are business expenses that occurs whether there is production or sales activities or not. Examples of such expenses are Rent, Transportation (not relating to shipping of your raw materials or products), Telephone, Internet, Advert cost, Utilities, Salaries etc. Addition of these costs makes up the fixed cost. Unlike the the variable cost, you should not divide the total fixed cost by number of units
Variable cost - These are cost that relates directly to products. Without it, your business would not have a product. Examples are Raw materials, Labor cost, shipping of material cost, shipping of finished goods cost to the customers
Contribution Margin - This is the difference between the Unit Sales price and the Unit Variable cost

How to Calculate the Breakeven point in Units
Determine your Unit sales price. i.e For Amaka, how much will one shower gel be sold?
Add up your variable costs and divide by the total number of units
Add up your fixed cost
Input your figures into this
Or use the formula below

Fixed Cost ÷ Contribution Margin
Where Contribution Margin per unit is Unit Selling price less Unit Variable Cost
Lets use Amaka as further example
Assuming Amaka’s company sells a unit of its glow oil for N8,500, and incurs the following expenses
a. Telephone 5,000
b. N700 for cost of materials per unit
c. Internet 7,000
d. Transportation 15,000
e. 1,200 direct labour wages per unit
We identify the Unit sales price as N8,500
The variable unit costs are:
Cost of materials plus N 700
Direct labour cost N 1,200
Total variable cost was N 1,900
Fixed costs are:
Telephone N 5,000
Internet N 7,000
Transportation N. 15,000
Add Total Fixed Cost N 27,000
The contribution Margin is No. 1 less No. 2c N 6,600
Total Fixed cost ÷ the Contribution Margin = N27,000 ÷ N6,600
Breakeven Units = 4.09

Therefore Amara’s company needs to sell more than 4.09 units to make profit.
Why you should know your breakeven points
To plan your profit
To plan your sales discounts and customer expansion strategy
To plan your inventory purchase
To target a great pricing mechanism
To prepare your budgets and targets

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