2.4 Break-even point analysis
After the operating costs have been estimated for a specific period the next step is to calculate the break-even point. This refers to the level of the turnover (amount of sales) where the gross profit is equal to the estimated operating costs. Break-even turnover is an important guideline for the prospective entrepreneur, as he or she should know the minimum turnover necessary for covering all the costs.
An entrepreneur is wants to work out the break-even point of his business. He sells desks to the retail market at R1 000 and it costs him R600 per unit to produce. His fixed costs for the month amount to R50 000. What is his break-even point in unit and rand value?
Case Studies
Watch the following video to gain some insight into how to calculate break-even point: