Break Even Contribution method calculation

This method work out how much each unit produced and sold contributes to covering the fixed costs.

By calculating the contribution of each product to fixed costs it is possible to know how many units will be needed to be produced and sold to cover all the fixed costs and therefore breakeven.

The formula

Break even = Fixed costs

Selling price – variable costs


E.g. 
selling price =£15 
variable costs per unit of £11.
Fixed costs = £20,000

Therefore £20,000 = 5,000 units
£15- £11