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I put the cost of the stock I bought from my supplier into fixed costs and the break-even came out huge: what went wrong?

You counted the stock twice. The cost of each item is already in the variable cost per unit, so adding the whole supplier invoice to fixed costs inflates the result. Take the stock invoice out of fixed costs and leave only rent, salaries, subscriptions and similar costs there.

Published · 3 min read

How the double count happened

Say you bought 500 units at 30 each, an invoice of 15,000, your real fixed costs are 5,000 a month, and you sell each unit at 60. When you entered 30 as the variable cost in the Break-even calculator, you told it that every unit you sell costs you 30. That is correct, and it already covers the whole purchase, one unit at a time.

Then you added the 15,000 to fixed costs, as if the stock had to be paid for a second time as a lump sum on top of each unit's cost. Here is what you saw:

  1. Wrong entry: fixed costs 20,000, price 60, variable cost 30. Contribution 30; exact break-even 666.67, rounded up to 667 units.
  2. Right entry: fixed costs 5,000, price 60, variable cost 30. Contribution 30; exact break-even 166.67, rounded up to 167 units, with revenue of 10,020 and a profit of 10 at that volume.

Notice that 667 is more than the 500 units you bought in the first place. That alone is a clear sign something in the setup is wrong.

So what does belong in fixed costs?

  • What you pay in the period whether you sell or not: rent, salaries, the store plan, internet, the accountant.
  • Not anything tied to the number of units sold: the product itself, packaging, shipping to customers, commission. All of that sits in the variable cost per unit.
  • If the supplier charges freight on the whole shipment, spread it over the units and add each unit's share to its variable cost.

The supplier invoice is real, so where does it show?

It is very real, but it answers a different question. Break-even asks how many units must sell before their contribution covers your fixed costs. The stock invoice raises a cash question: how much money do you need now to buy inventory, and when does it come back? The calculator covers neither cash flow nor unsold stock, and its limitations say so.

If 100 units never sell, that is a loss or cash tied up in stock, not part of the break-even. To decide when to reorder without overbuying, use the Inventory reorder-point calculator; to track what you actually paid suppliers month by month, use the Expense summary generator.

Common questions

I bought three months of stock. Should I split the invoice by three?

No need. It is already counted in the cost of every unit you sell. Splitting it and adding it to fixed costs repeats the same double count on a smaller scale.

What if my supplier's price changes on the next order?

Update the variable cost per unit to the new price and the break-even updates straight away.

Is there a quick sign of this kind of mistake?

If break-even comes out larger than everything you bought or could realistically sell, check what you put in fixed costs first.