{"id":31184,"date":"2022-10-23T06:11:10","date_gmt":"2022-10-23T06:11:10","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=31184"},"modified":"2025-12-17T16:54:06","modified_gmt":"2025-12-17T16:54:06","slug":"breakeven-quantity-of-sales-and-net-income","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/","title":{"rendered":"Breakeven Quantity of Sales and Net Income"},"content":{"rendered":"\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 is $12.00 and the variable cost per unit is $5.00. What is the company's breakeven quantity of sales?\",\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A.\\n\\nThe breakeven quantity is calculated as:\\n\\nQ_BE = (Fixed Operating Costs + Fixed Financing Costs) \/ (Price \u2212 Variable Cost)\\n\\n= ($5,000 + $10,000) \/ ($12 \u2212 $5)\\n= $15,000 \/ $7 \u2248 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\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/UO4w5yNuWdw?si=U1Fdx1uZsaaA5VTA\" 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<p>\u00a0<\/p>\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.<\/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 sales quantity is equal to the sum of its fixed operating and financing costs divided by its unit contribution margin or the difference between the price per unit and variable cost per unit.<\/p>\n<h3><strong>Example: Breakeven Quantity of Sales<\/strong><\/h3>\n<p>Assume that a company\u2019s product costs are represented by the figures below.<\/p>\n<p>$$ \\begin{array}{l|r} \\text{Price per unit sold} &amp; {$8.00} \\\\ \\hline \\text{Variable cost per unit} &amp; {$4.00} \\\\ \\hline \\text{Fixed cost per unit} &amp; {$2,500.00} \\\\ \\hline \\text{Fixed financing cost} &amp; {$1,200.00} \\\\ \\end{array} $$<\/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 a company&#8217;s net income at various sales levels.<\/p>\n<p>$$ \\begin{array}{c|c} \\textbf{Units sold} &amp; \\bf{\\text{Sales }($)} &amp; \\bf{\\text{Net income } ($)} \\\\ \\hline {625} &amp; {5,000} &amp; {-780} \\\\ \\hline {725} &amp; {5,800} &amp; {-520} \\\\ \\hline {825} &amp; {6,600} &amp; {-260} \\\\ \\hline {925} &amp; {7,400} &amp; {0} \\\\ \\hline {1,025} &amp; {8,200} &amp; {260} \\\\ \\hline {1,125} &amp; {9,000} &amp; {520} \\\\ \\hline {1,225} &amp; {9,800} &amp; {780} \\\\ \\end{array} $$<\/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 <strong>A<\/strong>.<\/p>\n<p>The breakeven quantity of sales can be found using the following formula:<\/p>\n<p>$$ Q_{BE}=\\cfrac{F+C}{P-V} = \\cfrac{$5,000+$10,000}{$12.00-$5.00}=2,143 \\text{ units} $$<\/p>\n<\/blockquote>\n<div class=\"notes_inv\"><hr \/><\/div>","protected":false},"excerpt":{"rendered":"<p>\u00a0 \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&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[25],"tags":[],"class_list":["post-31184","post","type-post","status-publish","format-standard","hentry","category-corporate-issuers","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 and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes<\/title>\n<meta name=\"description\" content=\"\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...\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Breakeven Quantity of Sales and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"og:description\" content=\"\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...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2022-10-23T06:11:10+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-12-17T16:54:06+00:00\" \/>\n<meta name=\"author\" content=\"Kosikos Tuitoek\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Kosikos Tuitoek\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\"},\"author\":{\"name\":\"Kosikos Tuitoek\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20\"},\"headline\":\"Breakeven Quantity of Sales and Net Income\",\"datePublished\":\"2022-10-23T06:11:10+00:00\",\"dateModified\":\"2025-12-17T16:54:06+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\"},\"wordCount\":421,\"articleSection\":[\"Corporate Issuers\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\",\"name\":\"Breakeven Quantity of Sales and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2022-10-23T06:11:10+00:00\",\"dateModified\":\"2025-12-17T16:54:06+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20\"},\"description\":\"\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...\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Breakeven Quantity of Sales and Net Income\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20\",\"name\":\"Kosikos Tuitoek\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g\",\"caption\":\"Kosikos Tuitoek\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/kosikos-tuitoek-enockanalystprep-com\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/UO4w5yNuWdw\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"1620\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2022-10-23T06:11:10+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Breakeven Quantity of Sales and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes","description":"\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...","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/","og_locale":"en_US","og_type":"article","og_title":"Breakeven Quantity of Sales and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes","og_description":"\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...","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2022-10-23T06:11:10+00:00","article_modified_time":"2025-12-17T16:54:06+00:00","author":"Kosikos Tuitoek","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Kosikos Tuitoek","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/"},"author":{"name":"Kosikos Tuitoek","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20"},"headline":"Breakeven Quantity of Sales and Net Income","datePublished":"2022-10-23T06:11:10+00:00","dateModified":"2025-12-17T16:54:06+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/"},"wordCount":421,"articleSection":["Corporate Issuers"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/","name":"Breakeven Quantity of Sales and Net Income - AnalystPrep | CFA\u00ae Exam Study Notes","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2022-10-23T06:11:10+00:00","dateModified":"2025-12-17T16:54:06+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20"},"description":"\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...","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/breakeven-quantity-of-sales-and-net-income\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Breakeven Quantity of Sales and Net Income"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/73df713e3b6e82ee139e1eff20cebe20","name":"Kosikos Tuitoek","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/8260edaa3f7ba04cf6b536b3f7fd769007ecb789b3289ac0cc4c3ab8b3f7f061?s=96&d=mm&r=g","caption":"Kosikos Tuitoek"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/kosikos-tuitoek-enockanalystprep-com\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/UO4w5yNuWdw","og_video_type":"text\/html","og_video_duration":"1620","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2022-10-23T06:11:10+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31184","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=31184"}],"version-history":[{"count":14,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31184\/revisions"}],"predecessor-version":[{"id":56906,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/31184\/revisions\/56906"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=31184"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=31184"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=31184"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}