**Break Even quantity** is the formula that is used
to determine the break-even point.

This formula is as follows: **BEQ= FC/P-VC**

Where:

**FC**= Fixed Costs

**P**= Price Charged per unit

**VC**= Variable Costs of production

**Fixed Costs** are those normal costs that are necessary
to run any business. For example rent, utilities, insurance, and even salaries.

**Price **is the amount usually in dollars that the
company will charge for the product. In manufacturing this will be the
amount that is actually received for the product.

**Variable Costs** are all the costs associated with
making the product. This may include such things as raw materials, production
labor, and costs associated with running the machinery. These are all costs
associated with the actual product and wouldn’t be used or needed without
a product.

For this example of break even analysis the book used is Carl and his toy trucks. This is a very good and valid example and we will use it with the graciousness of the authors.

The for Carl and his toy trucks are as follows:Fixed costs

=($2,000 x 12) + ($5,000 x 12) + $7,000 + ($1,500 x 4) + $3,000

=$24,000 + $60,000 + $7,000 + $6,000 + $3,000

=$100,000/year

Carl sells each truck for $10

=$1.25 + $0.25 + $2.50 + $2.00

=$6.00/ truck

That means that in order for Carl to break even he must produce 25,000 trucks per year.

The **contribution margin** is the amount of profit
or loss that is above or below the break-even point on a per unit basis.
This formula is usually used to show the amount of profit the company has
after the break-even point has been passed. In the BEQ Equation,

**Revenue **is just the sale price of the product times
the quantity sold. Or (R= P x Q) or Carl’s Revenue at break even would
be $250,000 which more easily stated is $10/per truck sale price times
25,000 trucks sold.

The same BEQ formula tweaked a little can also show us how many units need to be sold to make a certain profit. This tweaked version is as follows:

In other words:

The next part is break-even dollars. These are used to show how much revenue is required for break even. It is generally the same as BEQ except it expresses the contribution margin as a percentage rather then a dollar amount.

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