Factory Break-Even Point: How to Calculate It

What is the break-even point?

Contribution margin per unit = net selling price - variable cost per unit. Break-even units = fixed costs for the period / contribution margin per unit, provided that margin is positive and product mix remains reasonably stable.

Illustrative example

Assume monthly fixed operating costs EGP 300,000, net selling price EGP 1,000/unit and variable cost EGP 700/unit. Contribution is EGP 300/unit and break-even is 1,000 accepted units/month. These values are fictional, not Egyptian market estimates.

Use factory-specific assumptions

Exclude VAT collected on behalf of the authority when comparing net revenue and costs consistently. Clarify whether commissions, scrap, returns and freight vary per unit, and keep financing cash payments separate from accounting expense where appropriate.

Multi-product factories

For different products, use a weighted-average contribution margin based on an explicit and testable product sales mix. A shift in mix changes break-even output.

Frequently asked questions

Does break-even mean sufficient cash? No, working capital, taxes and debt payments still matter. What if required volume exceeds practical capacity? Revisit price, process, investment, cost structure or target market.