Definition of Break-even Point
The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In other words, it is the level of sales where the income statement will report a net income of exactly zero.
Examples Causing a Break-even Point to Increase
The break-even point will increase by any of the following:
- An increase in the amount of the company’s fixed costs/expenses
- An increase in the per unit variable costs/expenses
- A decrease in the company’s selling prices
- An unfavorable change in the mix of products sold
In short, if a company’s contribution margin per unit decreases, the company’s break-even point will increase.
