Break-Even Analysis Guidance | PRINT THIS
 

Enterprise budgets are useful for performing break-even analysis for prices and yields. The break-even price is computed as follows:

• Break-even price = anticipated total costs (sales-margin) / anticipated total production units
   

This is the minimum price per unit required to cover all costs at the anticipated yield. The break-even yield is computed as follows:

• Break-even yield = anticipated total costs / anticipated prices
   

This is the minimum yield required to cover all costs at the anticipated price per unit. Break-even analysis is a useful farm management tool because it allows calculation of various combination's of price and yield that will cover anticipated costs. Break-even analysis can also be used to calculate the break-even price or yield required to cover variable costs (short-term production decisions). If anticipated receipts are greater than anticipated variable costs, you should continue the enterprise. Any loss would be equal to some amount between the difference in total costs (variable costs plus fixed costs) and variable costs. If anticipated receipts are less than variable costs, losses would be minimized by not continuing the enterprise. In this situation, losses would be limited to the amount of fixed costs that you would have to absorb.

Source: Agricultural Alternatives Project at Pennsylvania State University with support from the U.S. Department of Agriculture-Extension Service