How many units before the month stops costing you money.
Fixed costs, selling price, variable cost per unit — and the point where contribution finally covers the bills.
Result
- Contribution per unit
- ₹420.00
- Break-even in units
- 1,071 units
- Break-even revenue
- ₹12,85,714.29
- Contribution margin
- 35.0%
Below 1,071 units the month runs at a loss; above it, every unit adds ₹420.00 of profit.
Break-even is the volume at which total revenue equals total cost. Below it every unit sold reduces a loss; above it every unit sold adds profit. It is the single most useful number for deciding whether a price is viable, whether an order is worth taking, and how much cushion a slow month leaves.
The mechanism is contribution. Each unit sold brings in its selling price and consumes its variable cost — material, direct labour, power. The difference is what that unit contributes toward the fixed costs that exist whether you sell anything or not: rent, salaries, the loan, the electricity connection.
Divide the fixed costs by that contribution and you have the number of units needed before the fixed costs are covered. Everything after that is profit.
The formula
- Contribution per unit
Selling price − Variable cost per unit- Break-even in units
Fixed costs ÷ Contribution per unit- Break-even in revenue
Break-even units × Selling price- Contribution margin
Contribution per unit ÷ Selling price × 100
Fixed and variable is a decision, not a fact
The split is less obvious than it looks. Rent is clearly fixed and raw material clearly variable, but most costs sit somewhere between. A permanent operator is fixed until volume forces a second shift. Power has a fixed connection charge and a variable consumption charge. Maintenance is fixed on a contract and variable on a breakdown.
The useful test is whether the cost changes when you make one more unit. If it does not, treat it as fixed. Being consistent matters more than being theoretically perfect — a break-even figure calculated one way every month is informative even if the split is arguable, and one calculated differently each time is not.
Why contribution matters more than profit per unit
When an order comes in below your normal price, the instinct is to compare it against full cost including a share of fixed overhead, and refuse it. That is right when the factory is full. It is wrong when it is not.
If fixed costs are already being covered by other work, an order that contributes anything above its variable cost adds to profit. Machines that are idle cost the same as machines that are running. Knowing your contribution per unit is what lets you tell the difference between a bad order and a useful one during a thin quarter.
Break-even for a product mix
The simple calculation assumes one product at one price. Most factories run several, and the honest version uses a weighted average contribution across the actual mix — which means break-even shifts whenever the mix does.
That is worth knowing rather than solving with arithmetic. A month heavy on low-margin work needs more volume to break even than a month of the same value in high-margin work, which is why revenue alone is a poor measure of whether a month went well.
Questions people ask.
What is the break-even point?
The sales volume at which total revenue equals total cost, so there is neither profit nor loss. Below it you are making a loss; above it every additional unit adds profit.
How is break-even calculated?
Break-even units = fixed costs ÷ contribution per unit, where contribution per unit is the selling price minus the variable cost per unit. Multiply the result by the selling price for break-even revenue.
What counts as a fixed cost?
Anything that does not change when you make one more unit — rent, salaries, loan repayments, insurance, the electricity connection charge. Material and direct labour that scale with output are variable.
What is contribution margin?
Contribution per unit expressed as a percentage of the selling price. It tells you what share of every rupee of revenue is available to cover fixed costs and then become profit.
Should I ever accept an order below full cost?
Sometimes. If fixed costs are already covered by other work and the factory has idle capacity, an order contributing anything above its variable cost adds profit. If the factory is full, that same order displaces better work and should be refused.
Other free tools
Doing this for every item, every day?
A calculator is the right tool once. When it is every item in the store, it belongs in the system that already knows the numbers.