Break-Even Point & Target Profit Lab

Scenario presets

Cost & Pricing Inputs

Selling price per unit ($)

Variable cost per unit ($)

Fixed costs per period ($)

Desired target profit ($)

Expected / projected sales volume (units)

Break-Even & Profit Results

Calculating results...

Margin of Safety

Break-even unit volume: -
Break-even revenue ($): -
Contribution margin per unit: -
Contribution margin ratio (%): -
Units to reach target profit: -
Revenue to reach target profit: -
Operating profit at projected units: -
Margin of safety (%): -
Margin of safety ($ & units): -
Degree of operating leverage (DOL): -

Sensitivity Analysis 1: Price vs. Variable Cost on Break-Even Units

Required unit volume to reach zero operating profit across price and variable cost adjustments.

Break-even units by selling price and variable cost. Rows change price, columns change variable cost.
Price \ Variable Cost	-20%	-10%	Base	+10%	+20%

Sensitivity Analysis 2: Fixed Overhead vs. Target Profit on Required Revenue

Total sales revenue ($) required to cover fixed overhead and hit target net earnings.

Required revenue by fixed costs and target profit. Rows change fixed costs, columns change target profit.
Fixed Costs \ Target Profit	-40%	-20%	Base	+20%	+40%

Production Volume Tier Schedule

Revenue, total costs, and operating profit across benchmark volume tiers from 0% to 200% of break-even.
Volume Benchmark	Units	Revenue	Total Cost	Operating Profit / (Loss)

Formulas and worked example

Contribution Margin: CM = Price - Variable Cost
Contribution Margin Ratio: CMR = CM / Price
Break-Even Units: BE_units = Fixed Costs / CM
Break-Even Revenue: BE_$ = Fixed Costs / CMR
Target Profit Units: Units_target = (Fixed Costs + Target Profit) / CM
Margin of Safety %: MOS% = (Projected Revenue - Break-Even Revenue) / Projected Revenue
Operating Leverage: DOL = (Units × CM) / Operating Profit

A cafe sells drinks at $6.50 with $2.20 variable ingredient costs and $15,000 monthly fixed overhead. The unit contribution margin is $4.30 (66.15% CM ratio). Break-even is 3,489 units ($22,674). To earn $5,000 target profit, 4,652 units ($30,233 revenue) are required. At 5,500 projected units, profit is $8,650 with a 36.58% margin of safety and a 2.73x degree of operating leverage.

Self-check quiz

1. The break-even point occurs where:

Total revenue equals total variable costs

Total revenue equals total costs (fixed + variable)

2. If variable costs per unit decrease while selling price and fixed costs stay the same, the break-even volume will:

Decrease (fewer units needed to break even)

Increase (more units needed to break even)

3. To calculate the sales volume needed to generate a specific target profit, you add the target profit to:

Variable cost per unit

Selling price

Fixed costs, then divide by contribution margin per unit

4. A business with a high degree of operating leverage (DOL):

Has low fixed costs and low business risk

Experiences large percentage swings in operating profit for small percentage changes in sales

Frequently asked questions

What is the break-even point in business?

The break-even point is the production or sales volume where total revenue exactly equals total costs (both fixed and variable), generating zero operating profit and zero net loss.

How do you calculate units required to reach a target profit?

Add the desired target operating profit to total fixed costs, then divide by the contribution margin per unit (Price minus Variable Cost).

What is the difference between contribution margin and gross margin?

Contribution margin subtracts all variable costs (both manufacturing and operating) from revenue, isolating cash generated per unit to pay fixed overhead. Gross margin subtracts cost of goods sold (COGS), which includes both variable production costs and fixed factory overhead.

What does the Margin of Safety tell a business owner?

The margin of safety shows the cushion by which projected or actual sales exceed the break-even threshold. It indicates how much demand can drop before the business begins sustaining operating losses.