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In order to compute the breakeven point either in revenues or units, are we able to...

In order to compute the breakeven point either in revenues or units, are we able to calculate the breakeven point by using the conventional income statements that we use for external reporting or do we need to utilize a different method?

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Answer #1

--No, conventional income statements that we use cannot be used for calculating break even point in units or in revenues.

--For this purpose, special 'Contribution margin Income Statement' is to be prepared where costs are classified into Variable cost and FIxed Cost.

--Under this, Revenues - Variable cost = Contribution margin and COntribution margin divided by Revenues = Contribution margin ratio.

--Break even point in units = FIxed Cost / Contribution margin per unit
--Break even point in revenue = Fixed cost / contribution margin ratio.

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