{"id":2207,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2207"},"modified":"2026-01-12T16:25:35","modified_gmt":"2026-01-12T16:25:35","slug":"breakeven-quantity-sales","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-finance\/breakeven-quantity-sales\/","title":{"rendered":"Breakeven Quantity of Sales"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Measures of Leverage (2021 Level I CFA\u00ae Exam \u2013 Reading 34)\",\n  \"description\": \"This video lesson covers key concepts in corporate finance related to leverage. It explains business, operating, and financial risk; demonstrates how to calculate and interpret degrees of leverage; explores the impact of financial leverage on net income and return on equity; and walks through break-even analysis using real-world examples.\",\n  \"uploadDate\": \"2018-10-24T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/isO1EhUqTn0\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=isO1EhUqTn0\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/isO1EhUqTn0\",\n  \"duration\": \"PT15M58S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"A company has fixed operating costs of $5,000 and fixed financing costs of $10,000. The price per unit for one of its products is $12.00 and the variable cost per unit is $5.00. The company\u2019s breakeven quantity of sales is closest to:\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A.\\n\\nThe breakeven quantity of sales can be computed using:\\n\\nQ_BE = (F + C) \/ (P \u2212 V)\\n\\n= ($5,000 + $10,000) \/ ($12.00 \u2212 $5.00)\\n= 2,143 units.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"2,143\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"1,500\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"963\"\n      }\n    ],\n    \"answerCount\": 3\n  }\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/isO1EhUqTn0?si=_wzG-BeVkZJdEjfJ\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<p>\u201cBreakeven point\u201d or \u201cbreakeven quantity of sales\u201d refers to the number of units of a company\u2019s product that is produced and sold at which point the company\u2019s net income becomes zero.<\/p>\n<h2><strong>Computing Breakeven Quantity of Sales<\/strong><\/h2>\n<p>At the point where a company\u2019s net income is zero, its revenues equal its costs. A company\u2019s costs are however made up of variable operating costs, fixed operating costs, and fixed financing costs.<\/p>\n<p>With this in mind, if Revenue = Costs, then:<\/p>\n<p>$$ PQ = VQ + F + C $$<\/p>\n<p>Where:<\/p>\n<p><em>P<\/em> = price per unit;<\/p>\n<p><em>Q<\/em> = number of units produced and sold;<\/p>\n<p><em>V<\/em> = variable cost per unit;<\/p>\n<p><em>F<\/em> = fixed operating costs; and<\/p>\n<p><em>C<\/em> = fixed financing costs.<\/p>\n<p>Therefore if Q<sub>BE<\/sub> is the breakeven quantity of sales, then:<\/p>\n<p>$$ PQ_{BE}=VQ_{BE}+F+C $$<\/p>\n<p>and<\/p>\n<p>$$ Q_{BE}=\\cfrac{F+C}{P-V} $$<\/p>\n<p>In other words, a company\u2019s breakeven quantity of sales is equal to the sum of its fixed operating and financing costs divided by its unit contribution margin or the difference between the&nbsp;price per unit and variable cost per unit.<\/p>\n<h3><strong>Example: Breakeven Quantity of Sales<\/strong><\/h3>\n<p>Assume a company\u2019s product costs are represented by the figures below.<\/p>\n<p> $$ \\begin{array}{l|r}\n\\text{Price per unit sold} &amp;\t{$8.00} \\\\ \\hline\n\\text{Variable cost per unit} &amp;\t{$4.00} \\\\ \\hline\n\\text{Fixed cost per unit} &amp;\t{$2,500.00} \\\\ \\hline\n\\text{Fixed financing cost} &amp;\t{$1,200.00} \\\\ \n\\end{array} $$ <\/p>\n<p>What is the company&#8217;s breakeven quantity of sales?<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>$$ Q_{BE}=\\cfrac{F+C}{P-V} = \\cfrac{$2,500+$1,200}{$8-$4}=925 \\text{ units} $$<\/p>\n<h3><strong>Determining Net Income at Various Sales Levels<\/strong><\/h3>\n<p>Using the example above, we can also determine the company&#8217;s net income at various sales levels.<\/p>\n<p> $$ \\begin{array}{c|c}\n\\textbf{Units sold} &amp; \\bf{\\text{Sales }($)} &amp; \\bf{\\text{Net income } ($)} \\\\ \\hline\n{625} &amp;\t{5,000} &amp; {-780} \\\\ \\hline\n{725} &amp;\t{5,800} &amp; {-520} \\\\ \\hline\n{825} &amp;\t{6,600} &amp; {-260} \\\\ \\hline\n{925} &amp;\t{7,400} &amp; {0} \\\\ \\hline\n{1,025} &amp; {8,200} &amp; {260} \\\\ \\hline\n{1,125} &amp; {9,000} &amp; {520} \\\\ \\hline\n{1,225} &amp; {9,800} &amp; {780} \\\\ \n\\end{array} $$ <\/p>\n<p>As can be seen from the table, at the breakeven quantity of sales, net income = 0, below the breakeven quantity of sales, net income &lt; 0, and above the breakeven quantity of sales, net income &gt; 0.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>A company has fixed operating costs of $5,000 and fixed financing costs of $10,000. The price per unit for one of its products is $12.00 and the variable cost per unit is $5.00. The company&#8217;s breakeven quantity of sales is <em>closest to<\/em>:<\/p>\n<p>A. 2,143.<\/p>\n<p>B. 1,500.<\/p>\n<p>C. 963.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is A.<\/p>\n<p>The breakeven quantity of sales can be found using the following formula:\n<\/p><p>$$ Q_{BE}=\\cfrac{F+C}{P-V} = \\cfrac{$5,000+$10,000}{$12.00-$5.00}=2,143 \\text{ units} $$<\/p><\/blockquote>\n<p>&nbsp;<\/p>\n<p><em>Reading 34 LOS 34d: <\/em><\/p>\n<p><em>Calculate the breakeven quantity of sales and determine the company\u2019s net income at various sales levels<\/em>\n<\/p><div class=\"notes_inv\">\n<hr>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-finance\/learning-sessions-curriculum-corporate-finance\/\"><em>Corporate Finance &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>\u201cBreakeven point\u201d or \u201cbreakeven quantity of sales\u201d refers to the number of units of a company\u2019s product that is produced and sold at which point the company\u2019s net income becomes zero. Computing Breakeven Quantity of Sales At the point where&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[],"class_list":["post-2207","post","type-post","status-publish","format-standard","hentry","category-corporate-finance","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Breakeven Quantity of Sales | CFA Level 1 - AnalystPrep<\/title>\n<meta name=\"description\" content=\"Breakeven quantity is the sales volume where total revenue equals total costs, resulting in zero net income. 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