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    sdkhaled1300's Avatar
    sdkhaled1300 Posts: 2, Reputation: 1
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    #1

    Jan 11, 2010, 11:49 AM
    Calculation of break even point
    Hi, I am SK, please somebody explain how to calculate break even point and where it appears in Balance Sheet.. Thanks...
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Jan 11, 2010, 05:45 PM

    The basic equation for break even is fixed costs divided by unit contribution margin. Contribution margin (CM) is sales price less variable costs.

    However, there can be a lot of other ways to figure it out depending on the type of information you have available and what you are attempting to do.

    And break even doesn't go on a balance sheet. It's just a number used for cost analysis "in-house" so to speak, and it's not an actual number, but rather a theoretical one.

    It's like saying, "Well, if I make $30,000 this year, I could spend $30,000 and break even." That doesn't mean you made that amount, nor that you spent that amount. It's just theoretical. Therefore, it doesn't belong on financial statements. If it's reported anywhere, it would be internal reports for the accountant and management to use.
    sdkhaled1300's Avatar
    sdkhaled1300 Posts: 2, Reputation: 1
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    #3

    Jan 12, 2010, 10:02 AM
    Quote Originally Posted by morgaine300 View Post
    The basic equation for break even is fixed costs divided by unit contribution margin. Contribution margin (CM) is sales price less variable costs.

    However, there can be a lot of other ways to figure it out depending on the type of information you have available and what you are attempting to do.

    And break even doesn't go on a balance sheet. It's just a number used for cost analysis "in-house" so to speak, and it's not an actual number, but rather a theoretical one.

    It's like saying, "Well, if I make $30,000 this year, I could spend $30,000 and break even." That doesn't mean you made that amount, nor that you spent that amount. It's just theoretical. Therefore, it doesn't belong on financial statements. If it's reported anywhere, it would be internal reports for the accountant and management to use.

    Thanks Morgaine for your answer...
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