{"id":31188,"date":"2022-10-27T12:57:06","date_gmt":"2022-10-27T12:57:06","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=31188"},"modified":"2026-03-08T09:45:43","modified_gmt":"2026-03-08T09:45:43","slug":"operating-break-even-quantity-of-sales","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/operating-break-even-quantity-of-sales\/","title":{"rendered":"Operating Break-even Quantity of Sales"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"What is the company\u2019s operating breakeven quantity of sales?\",\n    \"text\": \"A company has fixed operating costs of $7,500. The price per unit of its product is $13.30, and the variable cost per unit is $7.50. What is the company\u2019s operating breakeven quantity of sales?\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. The operating breakeven quantity is calculated as Q = Fixed Costs \/ (Price \u2212 Variable Cost). Therefore, Q = 7,500 \/ (13.30 \u2212 7.50) = 7,500 \/ 5.80 \u2248 1,293 units.\"\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"2,143.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"1,293.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"864.\"\n      }\n    ]\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Measures of Leverage (2023 Level I CFA\u00ae Exam \u2013 Corporate Issuers\u2013Module 8)\",\n  \"description\": \"This video lesson covers the fundamentals of leverage and risk in corporate finance for CFA Level I. It explains business, operating, and financial risk, and teaches how to calculate degrees of leverage, analyze their effects on ROE and net income, and determine breakeven sales quantities and operating breakeven points.\",\n  \"uploadDate\": \"2022-03-03T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/i.ytimg.com\/vi\/UO4w5yNuWdw\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=UO4w5yNuWdw\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/UO4w5yNuWdw\",\n  \"duration\": \"PT26M59S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/UO4w5yNuWdw?si=K27BJJwL2DOZHXxp\" 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>The breakeven quantity of sales, or simply breakeven point, indicates the number of units of a company\u2019s product that is produced and sold. At this point, a company\u2019s net income becomes zero. Similarly, we can specify the breakeven point concerning operating profit. This is referred to as the \u201cOperating breakeven point\u201d or \u201cOperating breakeven quantity of sales.\u201d<\/p>\n<h2><strong>Calculating Operating Breakeven Quantity of Sales<\/strong><\/h2>\n<p>At the operating breakeven quantity of sales, Revenues = Operating costs, so mathematically:<\/p>\n<p>$$PQ_{OBE} = VQ_{OBE} + F $$<\/p>\n<p>Where:<\/p>\n<p><em>P<\/em> = Price per unit.<\/p>\n<p><em>Q<sub>OBE<\/sub><\/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>Therefore, rearranging the formula, the operating breakeven quantity of sales,<\/p>\n<p>$$ Q_{OBE}=\\cfrac {F}{P-V} $$<\/p>\n<p>In other words, a company\u2019s operating breakeven quantity of sales is equal to the company\u2019s fixed operating costs divided by the difference between the\u00a0price per unit and variable cost per unit.<\/p>\n<h4><strong>Example: Operating Breakeven Quantity of Sales<\/strong><\/h4>\n<p>Assume that the figures below represent a company\u2019s product costs.<\/p>\n<p>$$ \\begin{array}{l|r}<br \/>\\text{Price per unit sold} &amp; {$8.00} \\\\ \\hline<br \/>\\text{Variable cost per unit} &amp; {$4.00} \\\\ \\hline<br \/>\\text{Fixed cost per unit} &amp; {$2,500.00} \\\\ \\hline<br \/>\\text{Fixed financing cost} &amp; {$1,200.00} \\\\<br \/>\\end{array} $$<\/p>\n<p>What is the company&#8217;s operating breakeven quantity of sales?<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The operating breakeven quantity of sales:<\/p>\n<p>$$ Q_{OBE}=\\cfrac {$2,500}{$8.00-$4.00}=625 \\text{ units} $$<\/p>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>A company has fixed operating costs of $7,500. The price per unit for one of its products is $13.30, and the variable cost per unit is $7.50. The company&#8217;s operating breakeven quantity of sales is <em>closest to<\/em>:<\/p>\n<p>A. 2,143.<\/p>\n<p>B. 1,293.<\/p>\n<p>C. 864.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>The operating breakeven quantity of sales can be calculated using the following formula:<\/p>\n<p>$$ Q_{OBE}=\\cfrac {F}{P-V} =\\cfrac {$7,500}{$13.30-$7.50}= 1,293 \\text{ units} $$<\/p>\n<\/blockquote>\n<div class=\"notes_inv\">\u00a0<\/div>","protected":false},"excerpt":{"rendered":"<p>The breakeven quantity of sales, or simply breakeven point, indicates the number of units of a company\u2019s product that is produced and sold. At this point, a company\u2019s net income becomes zero. Similarly, we can specify the breakeven point concerning&#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-31188","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>Operating Break-even Point Explained | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn how to calculate the operating break-even quantity of sales using fixed and variable costs. 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