Breakeven Analysis
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Breakeven analysis answers a simple question: how much does a company need to sell before it stops losing money?
What does "breakeven" mean?
Breakeven is the point where a company earns exactly $0 in profit — it didn't make money, but it didn't lose any either. Below breakeven, the company is operating at a loss; above it, every additional sale adds to profit.
Why do fixed and variable costs matter here?
Breakeven analysis depends entirely on how a company's costs behave:
- Fixed costs don't change with the level of activity — rent and salaries get paid whether the company sells 10 units or 10,000.
- Variable costs move directly with activity — more units sold means more materials and direct labor consumed.
Breakeven is the sales level where the revenue from units sold has covered both the variable costs of making them and the fixed costs of running the business — with nothing left over.
Study tip: Breakeven analysis always asks the same question — "how much do we need to sell to not lose money?" — and that answer can be expressed either in units or in sales dollars. See Two Methods of Breakeven Analysis for both.
Breakeven analysis starts with understanding cost behavior. Once you know which costs are fixed and which are variable, breakeven, target-profit, and margin-of-safety calculations all follow the same underlying logic.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 98 on BEC. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.