The determination of the breakeven point is one of the applications of costvolumeprofit (CVP) analysis.
Breakeven point refers to the level of activity or sales that will yield to zero profit. In other words, it is the level at which the business makes no gain or loss.
If the business operates above the breakeven point, it makes profits. If it sells below, then it incurs in losses.
The breakeven point is the point where "Sales" is equal to "Total Costs".
(Where: Total costs = Total variable costs + Total fixed costs).
The breakeven point provides managers with information useful in profitplanning.
BreakEven Point Formula
Breakeven point (BEP) can be determined in terms of number of units or dollar amount. The formula for BEP in units is:
BEP in Units =  Total Fixed Costs 
CM per Unit 
In computing for the BEP in dollars, contribution margin ratio is used instead of contribution margin per unit.
BEP in Dollars =  Total Fixed Costs 
CM Ratio 
Illustration
To illustrate the concepts of breakeven point, consider the following example. The following data summarizes the operations of Company ABC.
Per Unit 
Total 

Sales (5,000 units)  $15 
$75,000 

Less: Variable Costs  5 
25,000 

Contribution Margin  $10 
$50,000 

Less: Fixed Costs  20,000 

Operating Income  $30,000 
BEP in Units =  Total Fixed Costs 
= 
$20,000 
CM per Unit 
$10 

BEP in Units = 2,000 units 
Analysis: At 2,000 units, the company will make zero operating income. If the company sells more than 2,000 units, it will make profit. Otherwise, it will incur in losses. To prove, consider the following scenarios.
At 2,000 units (breakeven point)
Per Unit 
Total 

Sales (2,000 units)  $15 
$30,000 

Less: Variable Costs  5 
10,000 

Contribution Margin  $10 
$20,000 

Less: Fixed Costs  20,000 

Operating Income (Loss)  $ 0 
At 2,001 units (above breakeven point)
Per Unit 
Total 

Sales (2,001 units)  $15 
$30,015 

Less: Variable Costs  5 
10,005 

Contribution Margin  $10 
$20,010 

Less: Fixed Costs  20,000 

Operating Income (Loss)  $ 10 
At 1,999 units (below breakeven point)
Per Unit 
Total 

Sales (1,999 units)  $15 
$29,985 

Less: Variable Costs  5 
9,995 

Contribution Margin  $10 
$19,990 

Less: Fixed Costs  20,000 

Operating Income (Loss)  ($ 10) 
The BEP in dollars is $30,000 as shown in the computation at 2,000 units. Alternatively, it can be computed as total fixed costs divided by contribution margin ratio. The contribution margin ratio is 66.67% ($10/$15). Hence, fixed costs of $20,000 divided by CM ratio of 66.67% results in the BEP in dollars of $30,000.