Question 1

What is a break-even point?

Accepted Answer

The break-even point is the number of units you must sell (or revenue you must generate) for total revenue to equal total costs — resulting in zero profit and zero loss. Below it, you lose money; above it, you make a profit. It's calculated as Fixed Costs ÷ (Price per unit − Variable cost per unit). The denominator is called the contribution margin per unit.

Question 2

What is contribution margin?

Accepted Answer

Contribution margin per unit = Selling price − Variable cost per unit. It measures how much each unit sold contributes to covering fixed costs. The contribution margin ratio (CM%) = Contribution margin ÷ Selling price, and represents what fraction of each sales dollar is available for fixed costs and profit.

Question 3

What is margin of safety?

Accepted Answer

Margin of safety = (Expected or actual sales − Break-even sales) ÷ Expected or actual sales, expressed as a percentage. It tells you how much sales can drop before you start losing money. A margin of safety of 20% means sales can fall 20% before hitting break-even.

Question 4

Can I calculate target profit too?

Accepted Answer

Yes. Switch the calculator to 'Target Profit' mode and enter the profit you want to make. The tool will compute how many units you need to sell (and the revenue required) to hit that profit after covering all costs.