Class 11 Entrepreneurship Notes · CBSE
Break-Even Analysis
Break-Even Analysis — learn the break-even formula, calculate the sales volume where revenue equals expenses, and set profit targets. CBSE Class 11 Entrepreneurship notes with Ram's tea vending business and a live break-even calculator.
Last updated: 10 Sep 2026
Notes
Break-Even Formula
BREAK-EVEN VOLUME (PER MONTH)
Break-Even Volume = Fixed Cost (Per Month) / Gross Margin Per Unit
SALES TARGET
Sales Target = (Fixed Cost (per day) + Expected Profit (per day)) / Gross Margin per Unit
Break-Even Calculator
Break-Even Volume
280 cups
Fixed Cost ÷ Gross Margin per Unit
1 unit = ₹ 1.5 marginFixed Cost = ₹ 420
Each unit chips ₹ 1.5 off the fixed cost — 280 units fill the bar.
Ram's Tea Vending Business — Worked Example
Given
Equipment ₹ 12,000; initial supplies ₹ 1,000; loan ₹ 12,000 from a friend at ₹ 4/day interest.Own wage ₹ 300/day; helper ₹ 99/day; protection money ₹ 10/day; depreciation ₹ 7/day (12,000 over 60 months).Selling price: ₹ 5 per cup.
Solved Example
Problem
Calculate Ram's break-even volume per day, step by step: unit cost → gross margin → fixed costs → break-even.
Solution
280 cups per day — no profit, no loss
BREAK-EVEN VOLUME (PER DAY)
Break-Even Volume (per day) = 420 / 1.50 = 280 cups
Below 280 cups Ram makes a loss; above it, every extra cup is profit
| Day 1 | Day 2 | Day 3 | Day 4 | ||
|---|---|---|---|---|---|
| Number of Cups Sold | 200 | 280 | 500 | 1,000 | |
| Sales Revenue @ ₹ 5/cup | A | 1,000 | 1,400 | 2,500 | 5,000 |
| COGS (Variable) @ ₹ 3.50/cup | B | 700 | 980 | 1,750 | 3,500 |
| Gross Margin | C = A − B | 300 | 420 | 750 | 1,500 |
| Helper Wage | 99 | 99 | 99 | 99 | |
| Own Wage | 300 | 300 | 300 | 300 | |
| Interest | 4 | 4 | 4 | 4 | |
| Protection Money | 10 | 10 | 10 | 10 | |
| Depreciation | 7 | 7 | 7 | 7 | |
| Total Fixed Expenses | D | 420 | 420 | 420 | 420 |
| Profit/(Loss) before tax | E = C − D | (120) | 0 | 330 | 1,080 |
Reading the four days
Day 1 (200 cups) = loss of ₹ 120 — margin ₹ 300 is short of fixed costs. Day 2 (280 cups) = break-even, margin exactly equals fixed cost. Day 3 (500 cups) = profit ₹ 330. Day 4 (1,000 cups) = profit ₹ 1,080.So what? — The same maths decides whether a street-food stall opens on a rainy day: below 280 cups the day loses money, no matter how hard the vendor works.
Target Setting — Worked Example
Solved Example
Problem
Ram wants a daily profit of ₹ 600. What sales target should he set?
Solution
Sell 680 cups/day to earn ₹ 600 profit
Target = break-even plus ambition
A sales target is just the break-even formula with expected profit added on top. Set the profit first, add the fixed costs it must cover, then divide by the margin each unit earns.
Key Takeaways
Key Takeaways
- Break-even point: Total Revenue = Total Expenses — neither profit nor loss.
- Break-Even Volume = Fixed Cost ÷ Gross Margin per Unit. Ram: 420 ÷ 1.50 = 280 cups/day.
- Gross margin = selling price − unit cost, where unit cost counts wastage and the disposable cup (₹ 5 − ₹ 3.50 = ₹ 1.50).
- Fixed costs (wages, interest, protection money, depreciation) do not move with cups sold — they are due even on a zero-sales day.
- Sales Target = (Fixed Cost + Expected Profit) ÷ Gross Margin per Unit. Ram needs 680 cups for ₹ 600 profit.
- So what? — Every food stall, cab and delivery rider runs this same sum daily: fixed costs divided by margin tells you how many customers keep you alive.