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The break even point for a product is the point where total revenue received equals total costs associated with the sale of the product (TR=TC). A break even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break-Even Analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business.

In unit sales

If the product can be sold in a larger quantity than occurs at the break even point, then the firm will make a profit; below this point, a loss. Break-even quantity is calculated by:

Total fixed costs / (price - average variable costs). Utility Vehicle Leasing. (Explanation - in the denominator, "price minus average variablecost" is the variable profit per unit, or contribution margin ofeach unit that is sold. )

Firms may still decide not to sell low-profit products, for example those not fitting well into their sales mix. Firms may also sell products that lose money - as a loss leader, to offer a complete line of products, etc. But if a product does not break even, or a potential product looks like it clearly will not sell better than the break even point, then the firm will not sell, or will stop selling, that product.

An example:

Assume we are selling a product for $2 each. Assume that the variable cost associated with producing and selling the product is 60 cents.
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