Excel Break-Even Analysis

All the business models estimate their revenue and expenditure for the year, quarter, and month to know their break-even point in the business. This article will show you how to calculate the break-even analysis in Excel.

So, break-even is, Revenue – Total Costs = 0

In economics, we call the break-even point “the point of indifference.” This analysis informs the management of the minimum revenue required to cover its expenses.

The calculation of break-even points is different from industry to industry. So, for example, if the company is a product-selling company, we will consider the number of units sold. On the other hand, if the company is a services company, it will be a different strategy.

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How to do Break-Even Analysis in Excel?

Example #1 – Using the Goal Seek Tool

A Co. has prepared 58 electronic devices. It has incurred a fixed cost of $8 per unit and a variable cost of $6 per unit. This company does not know what price they need to sell these 58 devices to achieve the break-even point.

We need to construct this scenario in an Excel worksheet. If you do not know how to make it, follow the image formulas.

To find the break-even point, our profit amount should be zero.

  • We must open the “GOAL SEEK“ option from the “DATA” tab under What-If-Analysis in ExcelWhat-If-Analysis In ExcelWhat-If Analysis in Excel is a tool for creating various models, scenarios, and data tables. It enables one to examine how a change in values influences the outcomes in the sheet. The three components of What-If analysis are Scenario Manager, Goal Seek in Excel, and Data Table in Excel.read more.

  • Now, we can see below the “Goal Seek” window.

  • “Set Cell” is which cell we need to modify the value. In this case, we need to alter the “Profit” cell, so we must select the B10 cell.

  • “To Value” means what should be the “Set Cell” values. In this case, we need the “Profit” cell as zero. So, we must enter the value as 0.

  • We will click on “OK.” Then, “Goal Seek” can find the “Selling Price” required to achieve the break-even point.

So, A Co. has to sell the electronic devices at $14 per unit to achieve the break-even point.

Similarly, using the same “Goal Seek” analysis, we can find the selling price required to profit $5,000.

  • It may give the required “Selling Price” to achieve $5,000 as profit.

So, to achieve a profit of 4,000, A Co. must sell at $114 per unit.

Example #2 – Construct a Break-Even Table

Ms. Alisa is an entrepreneur who produces notebooks, and her costing model is as follows.

  • Fixed Cost = $4,000Variable Cost = $8 per unitSelling Price = $25 per unit

She wants to know how many units she must produce to achieve the break-even point. So let us help Ms. Alisa through our Excel break-even analysis.

  • Now, we must construct a table like the one below.

  • For Fixed CostFixed CostFixed Cost refers to the cost or expense that is not affected by any decrease or increase in the number of units produced or sold over a short-term horizon. It is the type of cost which is not dependent on the business activity.read more, we will give a cell link to B2 and make it an absolute reference.

  • For “Variable”, we must enter the formula as No. of Units * Variable CostUnits * Variable CostVariable cost per unit refers to the cost of production of each unit produced, which changes when the output volume or the activity level changes. These are not committed costs as they occur only if there is production in the company.read more Per Unit.

  • For “Total Cost,” add “Fixed + Variable.”

  • For “Revenue,” arrive at the formula as No. of Units * Selling Price Per Unit.

  • For “Profit,” we must enter the formula as Revenue – Total Cost.

  • Now, we will drag the formula of all the cells to 10 rows.

  • For “No. of Units,” we should start filing from 100 to 300.

From the G13th cell, “Profit” shows positive numbers, so to achieve a break-even point, Ms. Alisa needs to produce approximately 236 units.

  • Now let us create a Break-Even ChartBreak-Even ChartThe break-even chart illustrates the relationship between cost and sales by displaying profit and loss on various quantities for analysis.read more for the same data. First, we must select the “Total Cost,” “Revenue,” and “Profit” column.

  • Then, we will insert a line chart with markers.

So, where the curves of “Revenue & Total Cost” intersect is called the break-even point.

Things to Remember

  • Break-even is where the business stands at no profit, no loss scenario.Break-Even AnalysisBreak-Even AnalysisBreak-even analysis refers to the identifying of the point where the revenue of the company starts exceeding its total cost i.e., the point when the project or company under consideration will start generating the profits by the way of studying the relationship between the revenue of the company, its fixed cost, and the variable cost.read more is best suited for the production industry.The formula to find break-even in units’ is FC / (SP – VC).The intersection of revenue and total cost curves is called a break-even point.

This article is a guide to Break-Even Analysis in Excel. Here we discuss how to do Excel Break-Even Analysis along with examples & downloadable template. You may also look at these useful functions in Excel: –

  • Breakeven Analysis ExamplesBreak-Even Point in AccountingBEP FormulaBreak-Even Sales Calculation