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A break-even analysis is a financial tool used to determine the point at which a business or project becomes profitable by comparing the total costs to the total revenue. To perform a break-even analysis in Excel, you will need to gather data on fixed costs, variable costs, and expected sales revenue. Using this data, you can create a break-even chart in Excel to visually represent the point where the costs and revenue intersect. An example of this can be seen by inputting the data into the appropriate cells in Excel and using the built-in break-even analysis function to generate a chart. This analysis can provide valuable insights into the financial viability of a business or project and help with decision-making.
Perform Break-Even Analysis in Excel (With Example)
A break-even analysis is a calculation that tells you the number of units a business must sell of some product in order to break even, i.e. make a profit of exactly zero dollars.
After this point, additional units sold will result in a positive profit.
To perform break-even analysis, you can use the following simple formula:
Break-Even Point = Fixed Cost / (Selling Price Per Unit – Cost Per Unit)
The following example shows how to use this formula to perform break-even analysis in Excel.
Example: How to Perform Break-Even Analysis in Excel
Suppose Ty plans on opening a cookie shop.
His fixed costs will include the equipment he needs to buy along with the ingredients for the cookies, which comes to a total of $1,000.
Each cookie will cost $1 to make and he plans to sell them for $5 each.
Suppose we would like to perform break-even analysis to determine how many cookies he must sell to break even.
To do so, we can enter his fixed costs, selling price per unit, and cost per unit in Excel.
We can then type the following formula into cell B5 to calculate the number of units he must sell to break even:
=B1/(B2-B3)
The following screenshot shows how to use this formula in practice:
In order to break even, i.e. achieve a profit of exactly zero dollars, he must sell 250 units.
If we’d like, we can also type the following formulas into the following cells to calculate the total revenue, total cost, and total profit Ty will earn by selling this many units:
- B6: =B5*B2
- B7: =B1+(B5*B3)
- B8: =B6-B7
The following screenshot shows how to use these formulas in practice:
We can see that his total revenue will be $1,250, total cost will be $1,250 and total profit will be $0.
Once we have all these formulas in place, we could also change the selling price per unit in cell B2 to see how various prices affect the number of units he must sell to break even.
For example, suppose we change the selling price per unit to $6:
We can see that the number of units he must sell in order to break even drops to 200.
This should make sense. The higher the selling price per unit, the greater the profit per cookie and the fewer number of cookies he must sell in order to break even.
Feel free to play around with the values in cells B1, B2 and B3 to see how changing different price changes the value for the break even point.
Additional Resources
The following tutorials explain how to perform other common operations in Excel: