How to do break-even analysis in Excel?
Break-even analysis can help you get the point when the net profit is zero, which means the total revenues equals to the total expenses. It is quite useful to price a new product when you can forecast your cost and sales.
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Supposing you are going to sale a new product, and you know the variable cost of per unit and the total fixed cost. Now you are going to forecast the possible sales volumes, and price the product based on them.
Step 1: Make an easy table, and fill items with given data in the table. See the following screen shot:
Step 2: Enter proper formulas to calculate revenue, variable cost, and profit.
- Revenue = Unit Price x Unit Sold
- Variable Costs = Cost per Unit x Unit Sold
- Profit = Revenue – Variable Cost – Fixed Costs
Step 3: Click the Data >> What-If Analysis >> Goal Seek.
Step 4: In the Goal Seek dialog box,
- Specify the Set Cell as the Profit cell, in our case it is Cell B7;
- Specify the To value as 0;
- Specify the By changing cell as the Unit Price cell, in our case it is Cell B1.
- Click OK.
Now it changes the Unit Price from 40 to 36, and calculates the net profit to 0.
Therefore, if you forecast the sales volume is 50, and the Unit price cannot be less than 36, otherwise loss occurs.