Can be used to determine:
- What volume must be sold to cover all costs at a given sales price.
- What price must be set to cover all costs given an estimated demand for the product
Assume the following costs:
Fixed costs (FC): $ 1,000,000
Variable cost/unit (VC): $ 10.00
BE = FC / (P-VC)
Calculate the break-even unit volume at selling prices of $15.00 and $20.00 per unit.
At $15.00, BE = 1,000,000 / (15 – 10) = 200,000 units
At $20.00, BE = 1,000,000 / (20 – 10) =
Lower volume needed at higher price