The formula for the break even point tells you the revenue you need to sell to cover direct costs and overhead, but it doesn't include profit. If you recall, the break even formula was:
For example:
When you reach a sales volume of $500,000, your overhead is covered. Remodelers use this figure as part of their financial analysis to formulate a business strategy. If you want to calculate sales needed to cover both overhead and achieve profit goals, the formula is:
For example:
You need $500,000 for your break even, but with the next $100,000 in sales volume, you produce the 5% planned profit.
There is an incremental increase in overhead as sales go beyond the break even point, but it is not worth worrying about unless additional personnel are added to overhead payroll.
