## Accounting Break Even

The most widely used measure of break-even is accounting break-even. The accounting break-even point is simply the sales level that results in a zero project net income.

To determine a project's accounting break-even, we start off with some common sense. Suppose we retail one-terabyte computer diskettes for \$5 apiece. We can buy diskettes from a wholesale supplier for \$3 apiece. We have accounting expenses of \$600 in fixed costs and \$300 in depreciation. How many diskettes do we have to sell to break even, that is, for net income to be zero?

For every diskette we sell, we pick up \$5 - 3 = \$2 towards covering our other expenses (this \$2 difference between the selling price and the variable cost is often called the contribution margin per unit). We have to cover a total of \$600 + 300 = \$900 in accounting expenses, so we obviously need to sell \$900/2 = 450 diskettes. We can check this by noting that, at a sales level of 450 units, our revenues are \$5 X 450 = \$2,250 and our variable costs are \$3 X 450 = \$1,350. The income statement is thus:

 Sales \$2,250 Variable costs 1,350 Fixed costs
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