 Breakeven is an important concept. When starting a business, the first test of reasonableness is how many units need to be sold to breakeven. If it's a whole lot, maybe starting the business isn't a good idea. Breakeven can be defined a few different ways, but it always means the same thing. It's when the sale, it's the sales level where operating income equals zero. Another way to think about that is when contribution margin equals fixed costs or total revenues equal total expenses. There are three approaches to calculating breakeven. The income statement approach, a shortcut approach using contribution margin, a shortcut approach using contribution margin ratio. This video will focus on the income statement approach. So here's an example of a contribution margin income statement. We can expand it the following way. Revenue is sales price times unit sold. From that, we can subtract variable costs, which are variable costs per unit times unit sold. This difference gives us our contribution margin. From contribution margin, we can subtract total fixed costs to arrive at operating income. Remember that a breakeven operating income is zero, so this equation equals zero. Let's assume the following. Price is $50, variable cost is $30, and fixed costs are $10,000. I can write this as an algebraic formula. 50 times the unit sold minus 30 times the unit sold minus 10,000 equals zero. Or 50u minus 30u minus 10,000 equals zero. So continuing, 20u equals 10,000. Therefore, breakeven is 500 units. Yep, that's algebra.