The break-even point in operations management measures how many units must be sold for the company's profits on sales to equal its fixed costs. Understanding how to calculate the break-even point helps you determine how much you need to sell each unit for on the market. For example, if your break-even point is significantly higher than the number of units you can sell, you know you need to raise your price per unit or you will lose money.
Calculate the total fixed costs of the operation. Fixed costs refer to costs that remain constant no matter the quantity of goods produced, such as your rent and real estate taxes.
Calculate the variable costs -- costs that increase as production increases, such as those of raw materials -- of your operation per unit created.
Subtract the variable cost of each unit from the selling price to find the profit per unit. For example, if you pay $15 to make each unit and sell each unit for $35, subtract $15 from $35 to get a profit of $20.
Divide the fixed costs by the profit to find the break-even point. Finishing the example, if the fixed costs equal $3,000, divide $3,000 by $20 to find you need to sell 150 units to break even.
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