Price a product and find break-even volume

From the costs of a home-baked product, calculates unit cost, a suggested price and break-even volume.

What you send

Calculate variable cost, allocated fixed cost and full cost per box, then suggest a price for a 40% margin on the selling price and the break-even units. Show the formulas and workings in a table, and explain the effect of rounding to the nearest halala.

Product: a box of homemade cookies. Ingredients: SAR 8 per box. Packaging: SAR 2 per box.
Monthly fixed costs (rent and utilities): SAR 3,000. Expected sales: 500 boxes a month.
Target profit margin: 40% of selling price. Currency: SAR. No other costs in this example.

What you get

Assumptions

  • “40% margin” means 40% of selling price, not 40% markup on cost.
  • Fixed costs are monthly.
  • Expected sales are 500 boxes/month.
  • No taxes, spoilage, delivery, packaging labor, or other costs are included.
  • 1 SAR = 100 halalas, so rounding to the nearest halala means rounding to 2 decimal places.

1. Cost calculation

Item Formula Workings Result
Variable cost per box Ingredients + packaging 8 + 2 10.00 SAR/box
Allocated fixed cost per box Monthly fixed cost ÷ expected sales 3,000 ÷ 500 6.00 SAR/box
Full cost per box Variable cost + allocated fixed cost 10 + 6 16.00 SAR/box

2. Suggested selling price for 40% margin on selling price

Target margin formula:

[ \text{Margin %} = \frac{\text{Selling price} - \text{Full cost}}{\text{Selling price}} ]

Rearranged:

[ \text{Selling price} = \frac{\text{Full cost}}{1 - \text{Target margin}} ]

Item Formula Workings Result
Exact target price Full cost ÷ (1 − 0.40) 16 ÷ 0.60 26.6667 SAR/box
Price rounded to nearest halala Round to 2 decimals 26.6667 → 26.67 26.67 SAR/box
Profit per box at rounded price Selling price − full cost 26.67 − 16.00 10.67 SAR/box
Actual margin at rounded price Profit ÷ selling price 10.67 ÷ 26.67 40.01% approximately

Suggested price: 26.67 SAR per box.

3. Break-even units

Break-even formula:

[ \text{Break-even units} = \frac{\text{Monthly fixed costs}}{\text{Selling price} - \text{Variable cost per unit}} ]

Using the exact target price

Item Formula Workings Result
Contribution margin per box Selling price − variable cost 26.6667 − 10.00 16.6667 SAR/box
Break-even units Fixed costs ÷ contribution margin 3,000 ÷ 16.6667 180.00 boxes

Using the rounded price of 26.67 SAR

Item Formula Workings Result
Contribution margin per box Selling price − variable cost 26.67 − 10.00 16.67 SAR/box
Break-even units Fixed costs ÷ contribution margin 3,000 ÷ 16.67 179.96 boxes
Practical break-even Round up because partial boxes cannot be sold 179.96 → 180 180 boxes

Break-even: 180 boxes per month.

4. Effect of rounding to the nearest halala

Rounding the exact price of 26.6667 SAR to 26.67 SAR has a very small effect:

Effect Explanation
Price increases by 0.0033 SAR 26.67 is slightly higher than 26.6667
Actual margin becomes about 40.01% Slightly above the target 40%
Break-even becomes 179.96 boxes Mathematically slightly below 180
Practical break-even remains 180 boxes You cannot sell 179.96 boxes, so you round up to the next whole box

If the price were rounded down to 26.66 SAR, the margin would be slightly below 40%, and the practical break-even would rise to 181 boxes. Therefore, rounding to the nearest halala gives 26.67 SAR, which meets the target margin and keeps break-even at 180 boxes.

Top 3 priorities

  1. Use 26.67 SAR as the selling price to achieve approximately a 40% margin on selling price.
  2. Sell at least 180 boxes/month to cover the 3,000 SAR fixed costs.
  3. Review allocated fixed cost if actual sales differ from 500 boxes, because the full cost per box changes with volume.

How it works

  1. Enter unit costs, fixed costs and expected sales.
  2. Check the formulas, price and break-even point.
  3. Change the sales volume or margin and compare results.

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