The sales or sales volume at which sales exactly equal costs (the sum of variable and fixed costs), so profit is zero. Break-even sales are found as fixed costs ÷ contribution margin ratio.
Japanese name: 損益分岐点
Break-even point appears in 5 practice questions across 1 topic, including Business Strategy and Accounting Basics.
Costs are split into variable costs, which rise in proportion to sales, and fixed costs, which stay constant regardless of sales. The break-even point is the sales at which the contribution margin, sales minus variable costs, equals fixed costs, found as fixed costs ÷ contribution margin ratio. For example, with a variable cost ratio of 60% (contribution margin ratio 40%) and fixed costs of ¥3 million, break-even sales are 3 ÷ 0.4 = ¥7.5 million. When the price and variable cost per unit are known, the break-even sales volume is fixed costs ÷ (price − variable cost per unit).
Break-even sales divided by current sales is the break-even ratio, and one minus it is the margin of safety ratio. The margin of safety ratio shows by what percentage sales can fall before the company makes a loss; the higher it is, the more resistant the business is to falling sales. The sales needed for a target profit are found by adding the target profit to fixed costs and dividing by the contribution margin ratio.
A semiconductor fab requires large investment in manufacturing equipment and cleanrooms, and fixed costs such as their depreciation make up a high share of its costs. Large fixed costs raise the break-even point, so when demand falls and utilization drops, profit falls much more than sales. Conversely, once past the break-even point, the high contribution margin ratio makes increases in sales feed strongly into profit. Fabless companies, which specialize in design and outsource manufacturing, have relatively low fixed costs and tend to have lower break-even points.
Answer: A. ¥40 million
The variable cost ratio is 20 ÷ 50 = 0.4, so the contribution margin ratio, the part of sales available to cover fixed costs, is 1 − 0.4 = 0.6. Break-even sales are the sales at which the contribution margin exactly covers the fixed costs, so 24 ÷ 0.6 = ¥40 million. The current sales of ¥50 million are above the break-even point, and the profit is 50 − 20 − 24 = ¥6 million.
Answer: C. 500,000 units
Each chip sold earns a contribution margin of 4,000 − 2,400 = ¥1,600. To cover the fixed costs of ¥800 million with this margin, 800 million ÷ 1,600 = 500,000 units must be sold, and the sales at that point (the break-even sales) are 500,000 × 4,000 = ¥2 billion. In general, the more advanced the process, the larger the fixed costs for masks and design, so a product with a small sales volume may never reach its break-even point.
Either reduce fixed costs or lower the variable cost ratio (raise the contribution margin ratio). Methods include leasing equipment to cut fixed costs, buying materials more cheaply and raising prices. Measures such as automation, which raise fixed costs while lowering the variable cost ratio, can raise or lower the break-even point depending on expected sales.
It uses a simple model in which the variable cost ratio is constant regardless of sales and fixed costs are also constant. In reality, materials may become cheaper as volume grows, and fixed costs rise when capacity is added beyond a certain volume, so the results are used as a guide within the range where the assumptions hold.
Break-even sales are the sales at which the contribution margin exactly covers the fixed costs, so 24 ÷ 0.6 = ¥40 million.
A company has sales of ¥50 million, variable costs of ¥20 m…To cover the fixed costs of ¥800 million with this margin, 800 million ÷ 1,600 = 500,000 units must be sold, and the sales at that point (the break-even sales) are 500,000 × 4,000 = ¥2 billion.
A semiconductor manufacturer is developing a dedicated chip…The contribution margin ratio is 1 − 0.7 = 0.3, so break-even sales are 45 ÷ 0.3 = ¥150 million.
Which is the margin of safety ratio of a company with sales…Its share of fixed costs is therefore low and its break-even point tends to be relatively low, so its profit tends to fall less than an IDM's when demand drops.
Compared with an IDM (integrated device manufacturer), whic…Splitting costs into variable and fixed parts from past results in this way is called cost behavior analysis (cost estimation), and it is used in break-even analysis.
At a fab, the monthly number of wafer starts x (thousand wa…As an Amazon Associate I earn from qualifying purchases.
Fixed cost Variable cost Contribution margin IDM (integrated device manufacturer) Fabless Depreciation Foundry Correlation coefficient ABC analysis Five forces analysis