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