How much profit increase for every unity sold over the break-even point
Break-even point: This is the point in the annual output where the number of units sold, or number of services provided, produces enough gross profit to cover all the fixed overhead costs of operations. For example, a $100 gross profit per unit of output is first applied to the company's monthly burn rate of $100,000. Once 1,000 units have been sold, the company has reached its break-even point, and every unit sold after that point brings in pure profit to the company, as the fixed overhead has already been covered.
To calculate the profit increase for every unit sold over the break-even point, you first need to determine the contribution margin. The contribution margin is the difference between the selling price of a unit and the variable costs associated with producing that unit.
Here's how you can calculate the profit increase:
1. Determine the contribution margin per unit:
Contribution margin per unit = Selling price per unit - Variable cost per unit
2. Find the break-even point:
The break-even point is the point at which total revenue equals total costs, resulting in zero profit. In this case, the break-even point has already been reached, so you don't need to calculate it.
3. Calculate the profit increase for every unit sold over the break-even point:
Profit increase per unit = Contribution margin per unit
Since the break-even point has already been reached, any unit sold beyond this point will result in pure profit. Therefore, the profit increase for every unit sold over the break-even point is equal to the contribution margin per unit.
Keep in mind that this calculation assumes that all other costs, such as fixed overhead costs, remain constant and do not change with the sales volume. In reality, changes in sales volume may have an impact on other costs, so it's important to consider all relevant factors when analyzing profit increases.