1. Determine Variable Unit Costs. Determine the variable costs of producing one unit of this product. Variable costs are those costs associated with making the product or buying it wholesale. If you are making a product, you will need to know the cost of all the components that go into that product. For example, if you are printing books, your variable unit costs are paper, binding, and glue for one book, and the cost to put one book together. Let's say you calculate your unit variable cost at $11.50.
2. Determine Fixed Costs fixed costs are costs to keep your business operating, even if you didn't produce any products. To determine fixed costs, add up the cost of running your factory for one month. These costs would include rent or mortgage, utilities, insurance, salaries retirement benefit cost of non-production employees, and all other costs. In other words, fixed costs are all costs of your business except those directly related to producing your products. Let's say you determine your monthly total fixed cost at $25,000.
3. Determine Unit Price Determine the unit price for your product. This price may change as you see where your break-even point is, keeping in mind the damage of equipment and other unexpected expenses, and also desired profit, for now let's say your unit price is $25.00 per book.
Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs)
=25000/(25-11.5)
=1851.851
The above mention calculation provides good profit range from which company can set aside desired amount that will collect interest or purchase annuities.
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