Accounting break-even refers to the level of sales or revenue required to cover all of a company’s fixed and variable costs, resulting in zero net income or profit. In other words, it is the point at which a company’s total revenue equals its total costs, both fixed and variable.
To calculate the accounting break-even point, a company can use the following formula:
Accounting break-even point = Total fixed costs / (Price per unit – Variable cost per unit)
- Total fixed costs: all expenses that do not change with changes in the level of production or sales, such as rent, salaries, and depreciation
- Price per unit: the amount charged for each unit of product or service
- Variable cost per unit: the cost incurred for producing or providing each unit of product or service, which can vary with the level of production or sales.
The accounting break-even point is useful for determining the minimum level of sales required to cover a company’s costs, and can help management set prices and make decisions about production levels. However, it does not take into account other important factors such as taxes, interest payments, and opportunity costs, which can affect a company’s profitability. Therefore, it should be used in conjunction with other financial analysis tools to provide a more complete picture of a company’s financial performance.