The break-even rate is composed of direct labor and overhead per direct labor hour. For example, if the profit plan average direct labor rate is $20.00 and the profit plan overhead per direct labor hour is $30.00 then the profit plan break-even rate would be $50.00.
Likewise, the profit plan break-even multiplier is composed of the profit plan overhead
rate plus labor. For example, if the profit plan overhead rate is 1.50 then the break-even
multiplier would be 2.50 which is labor of 1.00 plus overhead of 1.5. The overhead
multiplier is calculated by dividing total planned overhead (indirect expense) by total
direct labor dollars. Overhead includes indirect labor. The break-even multiplier does not
include the profit multiplier.
See the charts showing the break-even multiplier along with the net multiplier. The gap between the break-even multiplier and net multiplier is operating profit before bonus and retirement plan distributions.