Updated July 25, 2023
BreakEven Sales Formula (Table of Contents)
What is the BreakEven Sales Formula?
The term “breakeven sales” refers to the sales value at which a company earns no profit no loss. In other words, the breakeven sales are the dollar amount of revenue that precisely covers the fixed expenses and the variable expenses of a business.
The formula for breakeven sales can be derived by dividing a company’s fixed costs by its contribution margin percentage. Mathematically, it is represented as,
The contribution margin percentage can be computed by dividing the difference between the sales and the variable costs by the sales and expressed in percentage. Mathematically it is represented as,
Therefore, the formula for breakeven sales can be combined as,
Examples of BreakEven Sales Formula (With Excel Template)
Let’s take an example to understand the calculation of BreakEven Sales in a better manner.
BreakEven Sales Formula – Example #1
Let us take the example of a company that is engaged in the business of leather shoe manufacturing. According to the cost accountant, last year, the total variable costs incurred added up to $1,300,000 on a sales revenue of $2,000,000. Calculate the breakeven sales for the company if the fixed cost incurred during the year stood at $500,000.
Solution:
The calculation of breakeven sales is performed using the following formula:
BreakEven Sales = Fixed Costs * Sales / (Sales – Variable Costs)
 BreakEven Sales = $500,000 * $2,000,000 / ($2,000,000 – $1,300,000)
 BreakEven Sales = $1,428,571
Therefore, the company has to achieve minimum sales of $1.43 million to break even at the current mix of fixed and variable costs.
BreakEven Sales Formula – Example #2
Let us take the example of another company, ASD Ltd. engaged in pizza selling that generated sales of $5,000,000 during the year. The company incurred a raw material cost of $2,500,000 and a direct labor cost of $1,500,000. On the other hand, periodic costs such as depreciation, taxes, and interest expenses stood at $100,000, $50,000, and $200,500, respectively. Calculate the breakeven sales of ASD Ltd. based on the given information.
Solution:
The formula used to calculate the variable cost is as follows:
Variable Cost = Raw Material Cost + Direct Labor Cost
 Variable Cost = $2,500,000 + $1,500,000
 Variable Cost = $4,000,000
Fixed Costs are calculated using the formula given below
Fixed Costs = Depreciation + Taxes + Interest Expenses
 Fixed Costs = $100,000 + $50,000 + $200,500
 Fixed Costs = $350,500
The formula used to calculate breakeven sales is as follows:
BreakEven Sales = Fixed Costs * Sales / (Sales – Variable Costs)
 BreakEven Sales = $350,500 * $5,000,000 / ($5,000,000 – $4,000,000)
 BreakEven Sales = $1,752,500
Therefore, to break even, ASD Ltd. has to achieve minimum sales of $1.75 million.
BreakEven Sales Formula – Example #3
Let us take the example of Walmart’s annual report for the year 2018. According to the annual report, the following information is available, Calculate the breakeven sales of Walmart Inc. for the year 2018.
Solution:
The formula used to calculate fixed costs is as follows:
Fixed Costs = SG & A Expenses + Interest + Taxes
 Fixed Costs = $106.51 Bn + $2.18 Bn + $4.60 Bn
 Fixed Costs = $113.29 Bn
The calculation of BreakEven Sales utilizes the following formula:
BreakEven Sales = Fixed Costs * Sales / (Sales – Variable Costs)
 BreakEven Sales = $113.29 * $495.76 / ($495.76 – $373.40)
 BreakEven Sales = $459.01 Bn
Therefore, Walmart’s breakeven sales for the year 2018 are $459.01 billion.
Source: Walmart Annual Reports (Investor Relations)
Explanation
To derive the formula for breakeven sales, you can follow these steps:
Step 1: Firstly, determine the subject company’s variable production costs. Typically, variable costs directly vary with the change in production level or sales volume. Examples of variable costs are raw materials, fuel, direct labor, etc.
Step 2: Next, determine the fixed costs of production, which include those types of costs that are periodic in nature and, as such, do not change with the change in the production level. Examples of fixed costs are management salaries, depreciation, interest, taxes, and rental expenses.
Step 3: Next, determine the total sales of the company during a specific period of time, halfyearly or annually, etc.
Step 4: Next, calculate the contribution margin percentage by dividing the difference between the sales (step 3) and the variable costs (step 1) by the sales. Breakeven sales express themselves in terms of a percentage.
Contribution Margin Percentage = (Sales – Variable Costs) / Sales * 100%
Step 5: Finally, the formula for breakeven sales can be derived by dividing the fixed costs (step 2) of a company by the contribution margin percentage (step 4) as shown below,
BreakEven Sales = Fixed Costs / Contribution Margin Percentage
or
BreakEven Sales = Fixed Costs * Sales / (Sales – Variable Costs)
Relevance and Use of BreakEven Sales Formula
Understanding the concept of breakeven sales holds significant importance as it plays a predominant role in determining the minimum sales required to achieve a situation of no profit and no loss. It finds widespread utilization in the early stages of a new business or product line, enabling the formulation of a clear plan and identification of key risks associated with attaining the desired profitability.
BreakEven Sales Formula Calculator
You can use the following BreakEven Sales Formula Calculator
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BreakEven Sales = 


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This is a guide to BreakEven Sales Formula. Here we discuss how to calculate BreakEven Sales along with practical examples. We also provide a BreakEven Sales calculator with a downloadable Excel template. You may also look at the following articles to learn more –