when companies calculate the bep they identify the amount of sales required to cover all fixed costs before profit generation can begin the break even point formula can determine the bep in product units or sales dollars 
investopedia paige mclaughlinunderstanding break even analysisbreak even analysis looks at fixed costs relative to the profit earned by each additional unit produced and sold a firm with lower fixed costs will have a lower break even point of sale and 0 of fixed costs will automatically have broken even with the sale of the first product assuming variable costs do not exceed sales revenue fixed costs remain the same regardless of how many units are sold examples of fixed and variable costs include break even point formulabreak even analysis involves a calculation of the break even point bep the break even point formula divides the total fixed production costs by the price per individual unit less the variable cost per unit 1bep total fixed costs price per unit variable cost per unit calculating contribution margin and bepsa product s contribution margin is the difference between the selling price of the product and its variable costs 1 so relative to the bep formula above you could also say that the bep total fixed costs contribution margin contribution margin item price variable cost per unitfor example if an item sells for 100 with fixed costs of 25 per unit and variable costs of 60 per unit the contribution margin is 40 100 60 this 40 reflects the revenue collected to cover the remaining fixed costs which are excluded when figuring the contribution margin to find the total units required to break even divide the total fixed costs by the unit contribution margin bep units total fixed costs contribution marginassume total fixed costs are 20 000 with a contribution margin of 40 shown above the break even point is 500 units 20 000 divided by 40 upon selling 500 units the payment of all fixed costs is complete and the company will report a net profit or loss of 0 to calculate the break even point in sales dollars you ll need to divide the total fixed costs by the contribution margin ratio so first you must determine the ratio contribution margin ratio contribution margin per unit item pricecontinuing with the example above the contribution margin ratio is 40 40 100 x 100 to convert to a percentagenow as noted just above to calculate the bep in dollars divide total fixed costs by the contribution margin ratio bep sales dollars total fixed costs contribution margin ratio 50 000 20 000 40 in accounting the margin of safety is the difference between actual sales and break even sales 2 managers utilize the margin of safety to know how much sales can decrease before the company or project becomes unprofitable who calculates beps although investors may not be interested in an individual company s break even analysis of production they may use the calculation to determine at what price they will break even on a trade or investment 1 the calculation is useful when trading in or creating a strategy to buy options or a fixed income security product 