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The break-even point is a negative value. Different ways of break-even analysis. Break-even point in monetary terms

The break-even point is the amount of sales (in quantitative or monetary terms) at which the company operates at zero. With an increase in sales relative to this point, the company will have a profit, and with a decrease, a loss.

What is she for?

This indicator allows you to understand the following already at the planning stage:

Is it worth investing at current product prices, cost and fixed costs?
How much do you need to increase sales without changing prices, production costs and fixed costs, so as not to incur losses
How much it is necessary to sell products for the company to work in plus if one or more of the indicators changes: the price of products, the cost of production, fixed costs of management or production.

Calculation formula

The break-even point in physical terms (pieces, tons, liters, etc.) is calculated by the formula:

BEP (nat.) = FС / (P - AVC), where

BEP (break-evenpoint) - breakeven point
FC (Fixed costs) - fixed costs
AVC (average variable cost) - average variable costs

We note right away that (P - AVC) is, depending on the business, either marginal profit (if this is production) or a margin on goods (if the calculation is done for a store or wholesale trade).

If we want to find the break-even point in monetary terms, then there are two calculation options:

Find the break-even point in physical terms and multiply it by the price of the product
BEP (den.) = P * BEP (nat.)
Multiply by the price the whole formula for calculating the break-even point. The result is the following formula:
BEP (den.) = P * FC / (P - AVC)

Calculation example for a store

Let's take a simplified situation as an example. The store sells one product - bread at a price of 20 rubles per piece. The store purchases this bread at the factory at a price of 15 rubles per piece. Store fixed costs:

The seller's salary is 20,000 rubles. + social contributions (34.2%)
Room rental - 30,000 rubles.
Utility expenses - 5,000 rubles.

In our example, P = 20 rubles, AVC = 15 rubles, FC = 20,000 * 1.342 + 30,000 + 5,000 = 61,840 rubles.

Substituting these numbers into the formula, we get the following break-even point value in physical terms:

BEP (natural) = 61,840 / (20 - 15) = 12,368

If we want to find the break-even point in monetary terms, then we simply multiply the resulting volume by the price of the product:

BEP (den.) \u003d 12,368 * 20 \u003d 247,360 rubles.

Calculation example for a manufacturing plant

For greater clarity, let's calculate the break-even point at a conditional bakery that supplies bread to retail outlets in the city.

The price of bread is 15 rubles.
The cost of production for 1 piece: flour - 7 rubles, water - 3 rubles, packaging - 1 rub.
General expenses: salary - 50,000 rubles. + deductions (34.2%), depreciation - 30,000 rubles, repair of equipment and premises - 40,000 rubles.

Thus, we get the following values of indicators:

P = 15 rubles
AVC \u003d 7 + 3 + 1 \u003d 11 rubles.
FC = 50,000 * 1.342 + 30,000 + 40,000 = 137,100

The break-even point in physical terms will be equal to:

BEP (nat.) \u003d FС / (P - AVC) \u003d 137 100 / (15 - 11) \u003d 34 275 pieces,

in monetary terms:

BEP (den.) \u003d P * BEP (nat.) \u003d 15 * 34,275 \u003d 514,125 rubles.

The nuances of the calculation

Unfortunately, the above formula for calculating the break-even point works very well for an enterprise that produces or sells only one product. If your company manufactures several types of products, then the weighted average price of all products and the weighted average cost of all products should be used as the product price and cost.
Thus, if we, for example, have two products (a loaf and a loaf) and their prices, cost and share in the sales volume are as follows:

Average variable costs include all costs that are linearly dependent on the volume of production. So, for example, if your wages of production workers directly depend on production volumes (for example, 5 rubles per unit or 5% of revenue), then you need to calculate this cost per unit of output and add it to AVC. In addition, do not forget that taxes on this salary also need to be considered as variable expenses.
For example, a bakery produces bread and sells it at a price of 20 rubles/kg, and variable costs for one loaf the following: 5 rubles. for flour, 3 rubles. for water, 1 rub. for packaging, 5% of revenue for wages.
In this case, we need to recalculate wages and taxes on it also for one loaf as follows:
Payroll \u003d 20 * 0.05 * 1.342 \u003d 1.342 rubles / loaf, where 20 is the price of the product, 0.05 - 5% of the revenue payment to the employee, 1.342 - we increase wages by the amount of social contributions.

Visual display of calculation in Excel

Using the example of calculating the break-even point of a bread store, which we calculated earlier, we will build a calculation graph and calculate the same parameter using Excel tools. Here's what it will look like:

The figure shows that we have calculated the break-even point using four cells. The lower profit calculation table for the store shows that it only comes out of losses when the sales volume becomes equal to 13,000 units (which is more than the calculated 12,368).

The formulas that we used to calculate the indicator can be seen in the following figure:

And the graph below shows the logic of calculating the indicator. In order to turn a profit, our revenue (blue line on the chart) must be greater than fixed (dark blue shading) and variable expenses (light blue shading) combined. The point of intersection of these two graphs is equal to the breakeven point.

This is the moment when the company will receive zero profit, that is, revenues will fully cover costs.
It plays an important role in evaluating the effectiveness investment projects and determining their payback period.
With the help of the break-even point, the investor can assess the risks when investing money in the proposed business.

It is known that there is a so-called accounting profit, when there is a positive balance of sales income in the reporting, but in reality the enterprise operates at a loss.

After all, every enterprise faces strategic goal maximize profit, and this cannot be done if you do not use analysis (it is advisable to do it before that as well).

Why is the breakeven point calculated?

The break-even point indicator shows the threshold of profitability of the enterprise from the sale of goods or the provision of services.

It means the level of price, cost, other production or marketing costs at which profit is equal to zero.

Calculated in monetary terms and in kind. For clarity, it is depicted graphically.

Reasons for calculation:

helps to determine the critical level of production. At the point of minimum sales, profit and loss reach zero. In this way, economists learn how much product is needed so that they do not incur a loss when selling it;
financial analysis of a firm or one of its industries. The calculation of the point will show the state of the enterprise in the context of individual products. In this case, a decision may be made to liquidate its production.
determination of enterprise sustainability;
cost planning. It is calculated how the volume of goods sold will change when the price changes;
change in the level of revenue;
definition ;
identifying bottlenecks in production. That is, those industries in which there are problems, such as low profitability or loss.

It is important to remember that the break-even level is inextricably linked to profit.

It is calculated as the difference between net revenue and production cost, and the latter consists of costs.

The calculation of the indicator in dynamics reflects the financial and production growth of the enterprise, will help develop effective strategy.

Initial data for calculating the indicator

First, let's look at what fixed and variable costs are.

Constant - do not change with the growth / decrease in production volumes. They remain unchanged under any conditions.

Their value fluctuates only from a change in a given period.

Fixed costs are considered part of the break-even point model, just like variables.

These costs include:

. Costs are distributed proportionally over the entire life cycle;
rent. The premises are rented, as a rule, for a long-term period. Therefore, it is reviewed only after the expiration of the lease, so such costs are considered fixed.
admin. personnel;
some .

Referred to as TFC on a graph or formula. Variable costs are directly dependent on the output of the product.

In accounting, they can easily be attributed to specific view products. For example, the cost of materials, fuel, raw materials.

In addition to these two data, the following information must be collected:

P. - price of a unit of production;
Q. - volume of sales in kind;
B. - sales proceeds;
TFC. - fixed costs;
TVC - variable costs.

In the accounting of a single enterprise, costs may be divided differently than in other firms.

It depends on the specifics of the activity. After all, all expenses are classified conditionally.

Even fixed costs change over time.

Method of calculation

The formula for calculating in monetary terms is mathematically as follows: BEP=FC/KMR

Where: FC - fixed costs;
KMR - marginal income (coefficient). Formula: KMR=MR/TR or KMR=MR/R.
Here: MR - marginal income, TR - revenue, P - price. We do not know marginal revenue, so we calculate ego as the difference between revenue and variable costs MR=TR-VC.

It is the marginal income ratio and fixed costs - these are the two values \u200b\u200bthat you need to know in order to calculate the break-even point in monetary terms.

This indicator is also called the profitability threshold.

Thus, it is possible to find out the minimum number products sold.

Formula: BEP=FC/(P-AVC).

Important: both formulas will show the break-even point, only the first option illustrates the critical cost ratio for zero profit, and the second is the minimum level of production.

How to Calculate the Break Even Point for Manufacturing

To do this, consider the calculation on the example of sugar beet production. Let's start in order.

First you need to take a report from which you can find out which group these or those costs belong to or divide them yourself.

Often the same articles can be both fixed and variable. Therefore, we divide them in a ratio of 30/70, respectively.

Fixed and variable costs

Expenditures	Sum
fixed costs
Wage	910*
Social accruals	336
overhead costs	8467
Selling costs	1566
Preparation and development of production	8640
	8361
Administrative costs	3319
Total Fixed Costs	31600
variable costs
Sugar beet harvesting costs	6909
Raw material costs	140108
Other materials	19229
Fuel and energy for technological purposes	102924
Wage	3642
Social accruals	1344
Maintenance Equipment Retention	3583
Selling costs	1669
Total variable costs	279408
Variable costs per 1 ton of beets, rub.	3621
The price of 1 ton of beets with VAT, rub.	5613
The price of 1 ton of beets without VAT, rub.	4677,69

*The figures in the table are not real, but are chosen arbitrarily, only to demonstrate the calculation of indicators.

We calculate the break-even point in physical terms.

This is more relevant for manufacturing enterprises than for firms engaged in the sale of finished products.

Formula: BEP=FC/(P-AVC).

You will get the following results:

Indicator results


Break-even point, t	29901
Sugar from own raw materials, t	29901
Sugar from purchased raw materials, t	47265
Total, t	77166

Based on the data in the table, we will build a graph.

On the graph, the red line is revenue, the blue line is fixed costs, and the purple line is total costs.

We got the following results: sugar from our own raw materials is 29,901 tons, the total production volume is 77,166 tons.
Thus, the production of sugar from purchased raw materials is 77166-29901 = 47265 tons.
Then the need for raw materials own production: 29901/77166 * 100 = 39 %.

How to calculate the break-even point of a store?

To do this, you need a formula for calculating the break-even point in monetary terms.

An example of calculating the indicator for a store is as follows:

The efficiency of the store will show the difference between the current turnover and this indicator at the break-even point.

The main cost items of the store are:

salary;
rent;
other costs.

In this example, they amount to 100,000 thousand rubles, 130,000 thousand rubles. and 10,000 thousand rubles. respectively.

Total costs - 240,000 thousand rubles. Percentage markup on goods 29%.

Thus, the level of turnover at the break-even point is determined.

Depends on the planning and economic department. Always displayed in the business plan in .

Break-even of a new project

This can be done manually, but it is better to use Excel for this. It will be enough to enter data or export them from other tables.

Consider the following example:

Initial data of the project


Fixed costs (Zpost.), R.	200
Variable costs (Zper.), R.	50
Price (income) from 1 unit. products (P), r.	120

Based on the initial data, we prescribe the formula in the cells.

In total, we get a lot of options, one of which has zero profit.

Thus, we calculate the break-even point of the project. Next, we build a diagram.

For this you need to do marketing analysis market, find out the price, calculate targets, all costs, and only then proceed to the break-even point.

Margin of financial strength

The break-even point and the margin of financial safety are interrelated indicators.

The financial safety margin is an indicator of the relationship between the actual sales volume and its level at the break-even point.

When it is high, the enterprise is considered sustainable.

Important: the margin of financial stability is the critical point to which sales revenue can be reduced.

If this indicator falls below, then the enterprise begins to receive a loss. Calculated as a percentage.

To find out the margin of financial stability, you need to subtract the critical one from the total revenue.

The growth of this indicator can be ensured by cost reduction, which is real in such cases:

the firm is located at a point where production and sales are the same;
more is produced than sold;
more sold than produced.

When an enterprise cannot sell manufactured goods, then they talk about a shortfall in profits and the stock decreases.

Important: in the reverse situation, the indicator will not be true. After all, it rises, but the cost of purchasing products from counterparties also increases.

Thanks to the analysis of financial stability, one can judge the financial position of the enterprise as a whole.

In simple words, we can say that the calculation of this indicator, especially its graphical representation, is how far production and sales of products are from the break-even point.

Economists believe that the stock of financial stability more accurately characterizes financial condition enterprises.

Take note that the margin of safety can rapidly change its value, depending on the distance between this indicator and the breakeven point.

It also changes in monetary, physical terms and is calculated as a coefficient.

Results

For leading companies commercial activity the calculation of the indicator is of key importance for determining the level of the cost recovery threshold.

It also helps to find the optimal volume of sales or production, to set a price level that will be the starting point for increasing targets and further profit.

The more accurately the costs are allocated, the better the result will be.

In real conditions, the classic formula may not work, especially if it concerns stores or enterprises specializing in the production of polyproducts, that is, with a large assortment, the break-even point for each product will be different.

She's calculated to see the change financial results(profit and profitability) of production or sales with an increase / decrease in production.

Using this indicator, you can maximize profits, since critical production volumes will be known.

How to calculate the breakeven point

Many companies use various analytical methods, including those borrowed from abroad, to manage their income and costs. Among them, the simplest and most common is CVP analysis, which involves estimating the breakeven point. By learning how to make simple calculations, you can get effective system financial management with elements of strategic planning.

Break even

Break even point (BEP) is the sales volume at which the entrepreneur's profit is zero. Profit is the difference between income (TR-totalrevenue) and expenses (TC-totalcost). It is measured in physical or monetary terms. It helps to determine how many products must be sold (services performed) to cover costs. At the break-even point, income covers expenses. If it is exceeded, the company makes a profit, if it is not reached, the company incurs losses.

It is a mathematical and graphical assessment of the relationship of three main components:

FROM- enterprise costs.
Q- the number of products sold (in natural units).
Pr- profit.

All calculations are made in order to:

determine the physical and cost volume of sales, which will allow not only to compensate, but also to obtain the desired profit;
predict how much profit you can get if the sales volume is known;
estimate how profit will react to changes in price, costs or quantity of goods;
establish the optimal structure for this type of activity.

Where to start?

You must first decide which of the costs are fixed and which are variables, since they are mandatory components for the calculation.

The main condition for conducting a CVP analysis is the division of all enterprise costs into two groups:

Variables(VC - Variable Cost) - costs, the volume of which changes in proportion to the growth (reduction) of production volume. That is, the more products you need to produce, the more you have to spend, and vice versa. These usually include raw materials and materials, semi-finished products, wages of workers, fuel and electricity for technological purposes, containers, etc.

The mean variables are calculated separately ( AVFROM– Average Variable Cost), which show the size of VC in terms of a unit of production. Over time, their size does not change.

Permanent(FC - Fixed Cost) - costs, the change of which does not directly depend on the growth and decline in production volumes. These are usually maintenance costs. administrative staff, utilities, communications, depreciation, etc. All these costs will occur even if the company cannot produce and sell anything. In this sense, they are conditionally constant.

Calculation formula

The breakeven point is calculated in two dimensions:

In natural units:

VERN = FC / (P - AVC) = FC x Q / (TP - VC)

Where P is the price.

This determines the minimum allowable sales volume in physical units of weight, length, volume or quantity.

In monetary units:

VERDEN \u003d VERNat x P

This determines the amount of revenue that will cover and get zero profit.

There is another method for calculating BEP in terms of value. But for this you need to use the indicator marginal income/profit (MR– marginal profit). It characterizes the part of the proceeds that will remain after the financing of variable costs and will be further used to cover fixed costs and make a profit.

MP = TP - VC = FC + Pr

Average contribution margin will be calculated like this:

AMP=MP/Q=P-AVC

Marginal income ratio - is the share of marginal income in the company's revenue. It shows how many kopecks of profit each additional ruble of revenue will bring.

K MP = MP / TP = AMP / P

Then to calculate the break-even point in monetary terms you can use the formula:

BEP=FC/K MP

The need for calculation

Break Even Analysis – an important source of information for making decisions regarding business activity:

Should I invest in a certain project? It is important for an entrepreneur to “not burn out” and it is important to know from what point the risk of financial failure will decrease. Based on the BEP indicator, it is possible to calculate the volume of sales, starting from which a new business will begin to make a profit, and investments will pay off.
What does the change in VER over time say? The expansion and contraction of activities directly affects the level of the critical point. The larger the company, the higher its VER. But if the volume of activity has not changed, and the profitability threshold has become higher, this may signal problems. Something goes wrong if you have to sell more than before to make a profit.
Change the price or volume of sales? The BEP indicator contains a linear relationship between the price and the quantity of goods intended for sale. On this basis, it is accepted strategic decision: if the selling price changes, by how much should the sales volume be changed so as not to lose profit? And vice versa, how should the pricing policy be adjusted in the face of changing sales volumes?
How much can you afford to cut revenue and still break even? The BEP indicator is used when calculating the margin of financial safety ( MFS- Margin of financial safety), which directly answers the question posed.

MFS = (TP - BEP) / TP x 100

MFS is defined as a percentage and allows you to compare different enterprises with each other. This coefficient is a kind of safety cushion. The higher it is, the better protected financial position companies from any negative changes in the market.

Calculation examples

Although all enterprises use the same formulas for calculating BEP, but the industry and type of activity affects the composition of costs, as well as their division into VC and FC.

For shop

Trade enterprises have an extensive range of products with different price characteristics, so it is physically impossible to calculate the critical volume for each type of product. It is more expedient to calculate the VER for the outlet as a whole. To do this, we conditionally divide the costs into variable and fixed.

By selling goods worth more than 1,012,500 rubles, the store will make a profit, and revenue below this level will plunge outlet into losses. In this state of affairs, each additional ruble of revenue brings 40 kopecks of profit.

For the enterprise

Manufacturing enterprises that specialize in the production of homogeneous products can calculate the critical point in both natural and monetary units.

Indicator Amount

Sales volume, pcs. 10,000

Selling price, rub. 150

Revenues from sales(p.1 x p.2) 1 500 000

Variables: 1 000 000

Raw materials and supplies 800,000

Salary of the main workers with deductions 100,000

Electricity for technological purposes 40,000

General production expenses 60,000

Average variable costs (p. 4 / p. 1) 100

Marginal income(p.3 – p.4) 500 000

fixed costs: 187 000

General plant costs 62,000

Depreciation and repair of equipment 25,000

Utility payments (gas, electricity, water, electricity) 30,000

manager salary and service personnel with deductions 70 00

Profit(p.6 – p.7) 313 000

Break-even point in natural units(p. 7 / (p. 5 - p. 2)) 3 740

Break-even point in monetary units(p. 9 x p. 2) 561 000

At this enterprise, making a profit is already possible from a sales volume of 3,740 pieces or 561,000 rubles.

Certain assumptions in the calculation

The calculation is simple and universal, but has its conditional limitations (assumptions):

the selling price does not increase with an increase in the volume of units sold;
costs remain unchanged;
products are fully sold (without residues in the warehouse and in production) in one operating cycle;
BEP is calculated for one type of product for which the cost can be determined.

The restrictions make the VER indicator not an absolute, but a conditional indicator and provokes criticism from many analysts.

VER chart

An important method of analysis is visual, which involves the construction of a break-even chart.

Since BEP is the level of activity at which revenues are equal to costs, the break-even point on the graph is formed at the intersection of two graphs: income (TR) and total costs (TC). The projection on the Q axis will show the size of the VER in physical terms, and on the TP axis - the VER in monetary terms.

Since there are fixed costs even with zero sales volume, the TC schedule starts from a point equal to the size of FC.

The sequence of plotting:

An income graph is being built: the first point is at 0, and the second is at the intersection of the sales volume in natural units and the amount of revenue.
The cost schedule is built: the first point on the vertical axis is at the level of fixed costs, and the second is at the intersection of sales volume in natural units and full (fixed and variable) costs.
VER is marked at the intersection of the graphs, as well as the profit and loss zone.

CVP Analysis is an easy-to-understand and apply methodology that will enable entrepreneurs to control current costs, plan prices and the volume of activities that ensure profit. Only by understanding the relationship of the main indicators, you can learn how to manage them.

As you know, every company carries out its activities for profit. Only when this goal is achieved can the firm ensure the stability of its work and the basis for expansion. The profit of the enterprise is expressed in the form of dividends on invested funds. The profitability of the company attracts investors, helps to increase its capital. One of the most important aspects of the activity is the concept of break-even. It is considered the first step towards obtaining accounting, and then economic profit. Consider next what is financial point breakeven.

Theoretical aspect

AT economics determination of the break-even point is understood as the normal state of the company in the conditions of modern competitive market, which is characterized long run equilibrium. At the same time, economic revenue is taken into account - income at which the company's costs include the average market rate of return on invested funds. Normal income of the company is also taken into account. Under these assumptions, the definition of the break-even point is as follows:

This is the volume of sales of a product, in which the profit from the sale fully covers the costs of its release, including the average market interest on own assets and entrepreneurial (normal) income.

Operational efficiency

If a company earns an accounting profit (the balance of its sales revenues and cash costs for the release of goods is positive), the break-even point may not be reached economically. For example, revenue may be below the average market interest on capital. It follows from this that there are other, more profitable options for using your own assets, which would allow you to receive more income. The break-even point of the enterprise, thus, acts as a criterion for evaluating the effectiveness entrepreneurial activity. A company that does not achieve it is operating ineffectively in the current market conditions. But this fact, of course, cannot be considered an unequivocal reason for the company to go out of business. To resolve the issue of termination of the company's activities, it is necessary to study the cost structure in detail.

Revenue maximization

It is necessary for the optimal functioning of the company. The maximization process is the calculation of the break-even point in economic terms. In the study of this procedure, the following concepts are used:

marginal income. It represents the amount by which the total profit of the company changes when the output of a product increases by 1 unit.
marginal cost. They express the amount by which total costs change when output increases by 1.
Total average cost is the sum of fixed, variable and sunk costs per unit of output.

From a certain moment (when a certain volume of output is established), the variable cost curve will be increasing, and marginal income, respectively, decreasing. For profit maximization, the ratio between profit and costs with an increase in output by 1 is fundamental. It is clear that when marginal costs less income, with an increase in the quantity of goods, the profit becomes greater. If costs are greater than revenue, then a decrease in output will increase revenue. Thus, it is possible to formulate a criterion under which the profit will be maximum: it is achieved when the marginal indicators of revenue and costs are equal.

Break-even point: how to calculate?

There are several points to be noted Special attention. First of all, the problem is to establish the critical volume of goods at which the break-even point of production is reached. There are three approaches to solving this problem:

The equation.
Establishment of marginal income.
Graphic image.

Also of particular importance will be the analysis of the break-even point (predictive setting) to changes in assumptions.

The equation

This break-even point method involves drawing up the following scheme:

Income - Variable expenses - fixed costs= Net profit.

The latter indicator can be denoted as P. P - the selling price of a unit of output, x - the volume of manufactured and sold products for the period, a - fixed and v - variable costs. Using these notations, we can write the following equation:

P \u003d P * x - (a + b * x), or P \u003d (P - c) * x - a.

The last equality indicates that all factors are divided into criteria that depend and do not depend on the volume of implementation. In the process of determining the parameters, the costs were divided into sold and manufactured products. This difference is considered the most significant in the two approaches to management accounting: Direct costing and Absorption costing. In the latter case, costing is performed with the distribution of all costs between the goods sold and its balance. In other words, fixed costs are resource intensive. When using the second method, fixed costs are attributed entirely to implementation. According to the first equation, you can easily calculate the break-even point. For this, simple mathematical transformations should be carried out. From the condition P = 0, the volume of output of goods is established, at which the break-even point is reached in the company. The formula looks like this:

ho \u003d (P + a): (P - c) \u003d a: (P - c).

Example

Consider a hypothetical company producing electronic components. The cost of one unit of goods is $5,000, variable costs (the price of components, staff salaries, and so on) for 1 product are $4,000, fixed costs are $20,000. Let's find the maximum production volume at which the the firm's break-even point. The formula will be:

xo \u003d 20,000: (5000 - 4000) \u003d 20 (units of production).

The time for which the found quantity must be released and sold will correspond to the period for which the value of fixed costs will be found. Using the equation in the previous paragraph, you can determine the amount of output that must be achieved to obtain a specific amount of profit, which will reach the break-even point. How to calculate the company's income, for example, in 10 thousand dollars? To do this, you need to issue:

x \u003d (10,000 + 20,000): (5000 - 4000) \u003d 30 (units).

Marginal profit

This method is considered a modified version of the previous method. Marginal profit will be considered the income that the company will receive from the release of one product. Using the example, let's find it:

5000 - 4000 = 1000 per item.

For a more accurate representation of the area of relevance, it is necessary to list the assumptions that are used in the construction of the described models.

General expenses and revenue

The behavior of these indicators is linear within the scope of relevance and is rigidly defined. This provision is true only when the change in the volume of output is small in comparison with the capacity of the market for this product. Otherwise, the linearity of the relationship between output and revenue indicators will be violated.

Expenses

All costs can be divided into fixed and variable. The former are independent of the volume of output within the scope of relevance. This assumption greatly simplifies the analysis. However, at the same time, it significantly limits the scope of relevance. Indeed, under this assumption, the volume is limited by the available fixed assets. However, it is not possible to increase them or rent them. A more realistic assumption is that the change in fixed costs occurs in steps. But it greatly complicates the analysis, since the graph of total costs becomes discontinuous. Variable costs remain independent of output within the scope of relevance. In fact, their value is presented as a function of the production volume, since the effect of a fall in the maximum productivity of factors takes place. In this regard, under the assumption of independence of fixed costs from the volume of output, variable costs increase with its growth.

Selling price

The assumption that it also remains unchanged is considered the most vulnerable point. This is due to the fact that the selling price depends not only directly on the work of the company, but also on the structure of market demand, the activities of competitors, and so on. The expenses of the enterprise for the promotion of its products, the formation of its trading network and many other things also have a significant impact on the change in the indicator. Here, therefore, it is necessary to investigate the many factors that affect the subsequent assessment. But such an analysis is quite complicated and requires an individual approach in a particular situation.

Other assumptions

The assumption that the services and materials that are used in production remain unchanged is also highly controversial. However, it greatly facilitates the evaluation. There are also the following assumptions:

Performance does not change.
There are no shifts in the structure. It makes sense to dwell on this assumption in more detail. Above, the issue of one unit of goods was considered. Accordingly, the problems of distribution of costs for different products, setting their prices, determining the effectiveness of one or another production structure did not arise. In conditions of variability, the assessment requires the use of additional criteria. The break-even point of sales is precisely set only for a specific product output structure.
Only the quantity of goods produced has a relevant effect on costs. This assumption is of particular importance for analysis. In this case, one should ignore the influence external factors and include in fixed costs all costs that do not depend on the quantity of production.
Production and sales volumes are equal, or changes in opening and closing stocks are insignificant.

"Sensitivity" rating

The above assumptions are of little use in real world. However, they can be adapted to reality through sensitivity analysis. This method involves the use of the "what will happen if ..." technique. Within its framework, you can get an answer to the question of how the outcome will change if the originally designed assumptions are not achieved or the situation with them changes. The margin of safety acts as a tool in such an analysis. It represents the amount of revenue that is at a level located below the break-even point. This amount shows the limit to which income can decrease so that there is no minus. Once the underlying assumptions about changes in the original assumptions have been made, the resulting adjustments to the margin of safety and contribution margin need to be established. In management accounting, a continuous assessment of cost behavior is carried out and a break-even point is periodically identified. At its core, sensitivity forms the elasticity of the margin relative to tolerances.

Cost and Price Estimates for Upcoming Periods

The operating firm takes these indicators from its own statistics and the behavior of the cost of production, taking into account the expected changes in the economy. In particular, one should take into account seasonal fluctuations, the activities of competitors, the emergence of substitute products (especially in high-tech markets). New companies cannot draw on their experience because it is not available. For them, therefore, it will be relevant to calculate by analogy with already operating firms in this industry. At the same time, you can use different background information. The most difficult thing is to create a company that will work in a non-existent sector. In this case, careful costing should be carried out, marketing research. For such firms, it is advisable to use pricing according to the "cost plus" method. The price in this case is obtained by adding a fixed margin to the amount of costs. In this option, the size of marginal income is known, therefore, the break-even point is easily found.

Conclusion

Considering the methods of establishing the break-even point, therefore, it is assumed that the cost of producing a unit of goods and the selling price act as external factors. In other words, by the time the desired indicator is found, these values are known and cannot be changed. Establishing these key parameters, their deep analysis allows, in turn, to explore the company's break-even planning.

Writing a business plan is impossible without calculating the break-even point using a formula. After all, the resulting number is the milestone after which the company's profit begins. In the article we will show how this point is calculated in different situations and give examples.

What you will learn about:

What is the break-even point and how to calculate it

Are you ready to name the fixed and variable costs (i.e. expenses) of the company for the product or for its implementation? Well, at least their approximate value?

If yes, then you are able to calculate for the firm a point at which there is no profit yet, but there is already no loss. The so-called break-even point of the company (English break-even point or BEP). Overcoming this boundary, the organization begins to earn profit.

Store managers can use the break-even point formula to determine how many units of a product they need to sell at a given price to achieve a minimum profit.

The calculation is used for planning, determining the correctness for the strategy for the future, and even for calculating the material motivation of employees!

More about the development of a personnel motivation system

To determine the BEP, you need to know:

the number of fixed costs - the amount that does not change with the volume of sales (for example, rent of the retail space of the store or the salary of the management staff);
the amount of variable costs - increases or decreases and depends on the volume of sales (for example, the cost of production (acquisition) of goods);
the price at which a product (service) is sold.

You can receive reports on expenses and income in the Business.Ru inventory program. With detailed traffic reports Money you will have the opportunity to necessary calculations to determine the effectiveness of your business.

How to calculate the break-even point: formulas

There are several basic formulas for calculating the break-even point of a business. One is based on the number of units sold and the other is based on the value of sales.

Break-even point in physical terms: formula

The calculation looks like this:

BEP = Fixed Cost ÷ (Price - Variable Costs)

Important! When calculating in pieces, fixed costs are indicated as the sum of all expenses for the firm. In this case, the price and variable costs are calculated per unit of product.

Let's analyze the components of the formula:

Fixed costs. As noted above, fixed costs do not depend on the number of goods sold, such as rent for trading area or industrial premises, computers and software. Fixed costs also include advertising fees and fixed labor costs.
The denominator of the equation, price minus variable costs, is called the margin contribution in economics.

Margin is the difference between the selling price and the variable costs. So if you sell a product for $100 and the cost of materials and labor is $40, then the margin fee is $60. These 60 rubles are then used to cover fixed costs. If there is money left after that, it is your net profit.

Thus, if your sales equal your fixed and variable costs, you have reached the break even point. We are talking about a net profit or loss of 0 rubles. Any sales beyond this point contribute to your bottom line.

Keep track of your sales and manage inventory with Business.Ru inventory management software. With it, you can control sales volumes, check sellers, calculate the profitability of products and arrange sales.

Break-even point calculation example

Entrepreneur Ivan has fixed costs, consisting of rent, depreciation of assets, wages and property taxes. These fixed costs amount to up to 60,000 rubles. . He is a sportswear tailor. Variable costs are calculated as 800 rubles per unit. He is going to sell suits for 2,000 rubles each.

60 000 / (2000 - 800) = 50 units

Therefore, Ivan needs to produce and sell 50 tracksuits per month to cover general expenses: fixed and variable.

Therefore, the 51st tracksuit sold is profitable, before that 50 pieces are simply break even.

The formula for calculating the break-even point in monetary terms

The break-even indicator in monetary terms is calculated when the product is in different price categories, and it makes no sense to calculate in units.

For example, if a cosmetics store sells varnishes for 100 rubles and perfumes for 15,000 rubles.

The calculation looks more complicated, since you need to find marginal income, then its coefficient (index).

You can calculate the index based on price and revenue.

If we take the price as a basis, then the marginal income is determined by the formula:

where MR is marginal income;

P - price (price);

AVC - variable cost per unit. goods.

For entrepreneur Ivan from the example above, the marginal income is equal to 2000 - 800 = 1200 rubles.

For Ivan KMR= 800 / 1200 = 0.67

Another way to calculate the index is based on revenue. Calculate the marginal income using the formula:

In this case:

TR is the company's revenue;

VC - total variable costs.

According to the formula KMR=MR/TR the marginal income index is calculated.

For example, Ivan's revenue is 100,000 rubles, while variable costs are 40,000 rubles.

MR = 100,000 - 40,000 = 60,000.

KMR = 60,000 / 100,000 = 0.6

Knowing this index (coefficient), we substitute it into the following formula for calculating the break-even point:

where BEP is the breakeven point,

FC - fixed costs;

KMR - marginal income index.

For entrepreneur Ivan BEP \u003d 60,000 / 0.6 \u003d 100,000 rubles.

Sometimes calculations with a graph or using Excel are used to determine the point.

Calculation with plotting

For clarity, the break-even point is calculated using the graph.

It is necessary to draw axes and designate monetary units vertically, and pieces horizontally.

The cost lines will cross the gross revenue schedule (also an inclined line).

At a certain point, gross receipts will cross the line variable costs. This is where the breakeven point is located.

On the chart, you can also see the threshold revenue and the threshold sales volume (that is, the volumes that must be reached in order to receive at least zero profit).

Figure - Determination of the break-even point on the chart

Break Even Point: Formula in Excel

The break-even point is calculated in Excel by filling in a table. We will present ready-made formulas and an algorithm so that you can do the calculation in five minutes.

1. Specify the quantity: you need to designate variable and fixed costs, as well as prices, as is done in the table below. At the same time, variable costs should be noted per unit of production:

2. Below we draw up a table in which gross costs, revenue, marginal income and profit will be calculated.

If you draw similar tables in the same cells, use the ready-made formulas:

Fixed costs $D$3;
Variable costs А9*$D$4;
Gross costs В9+С9;
Revenue (income) А9*$D$5;
Marginal income E9-C9;
Net profit Е9-С9-В9.

How to use break-even analysis: 5 areas of activity

Determining the break-even point is not the end of all calculations. When counting the numbers, you may find that you need to implement more items than you expected to achieve at least zero revenue.

If you did the calculation of the break-even point using the formula when drawing up a business plan, you need to choose what needs to be done:

rise prices;
cut costs;
do both.

Important! If you come up with an idea to sell unique goods on the Internet, you need to understand whether these products will be successful in the market. The break-even analysis determines the number of products to be sold, but there is no guarantee that they will be sold in principle.

Existing businesses conduct this analysis before launching a new product or service to determine if the potential gains are worth the cost of launching.

This analysis is not just useful for launch planning. Here are a few ways companies can use the break-even point formula in their day-to-day operations and planning.

Whether to raise prices

If the analysis shows that you need to sell a large number of goods for the desired period of time, then you can check the cost of this product in the market. It may turn out that your price is below the market.

Set an average price, you can always lower it to have a sale.

You can calculate the profitability of products, analyze the cost and markup in the Business.Ru inventory program. With it, you can easily predict sales, make purchases based on profit analysis, run sales, and set automatic discounts.

Whether to use cheaper materials or reduce labor costs

If you want to quickly reach the break-even point, then you can pay attention to materials and labor. Find out how you can maintain the quality of products and services you desire while reducing costs.

The simplest thing is to cut your own salary in order to reach the break-even point faster.

For example, if Ivan from our example, who needs to sell 50 suits to reach the break-even point, cuts his salary by 7 thousand rubles, then this will reduce expenses to 53 thousand rubles a month.

Substitute the values in the same formula:

53,000 / (2000-800) = 44,166 units. Therefore, if the manager's salary decreases, then it is possible to break even with a lower indicator.

The same will happen if Ivan uses cheaper knitwear for tailoring, having received the cost of one item of 600 rubles:

60,000 / (2000-600) = 42,857 units.

In this way, you can reach your goal faster without raising the price.

Calculation for new products

If you are going to run New Product, the calculation of the break-even point is necessary. Look out for new variable and fixed costs such as design and promotion fees.

Learn more about how to promote new product To the market,

Using Zero Profit to Plan for the Future

If you understand how much money you need to make to break even, it's easier to set long-term goals. For example, if you are looking to expand your business and move to a higher rent, more traffic location, you can determine how much more you need to sell to cover all fixed costs.

To calculate material motivation

By understanding how much product you need to sell and how much money to make to break even, you can plan motivational tools. That is, to establish sales standards, above which sellers receive additional bonuses.

A transparent system of employee motivation can be installed in the Business.Ru program. So your subordinates will understand how much and for what they have earned. Set plans for them, distribute tasks according to their importance, track the percentage of completion.

Examples of calculating the break-even point using the formula

An example of calculating the break-even point for a store

Let's determine the break-even point for a hardware store in which a wide product range, so it makes no sense to calculate the number of sales. It is necessary to calculate the break-even point according to the formula in monetary terms.

Store fixed costs:

rent including utility bills;
salaries of staff and manager;
insurance premiums;
advertising.

Variable store costs:

purchase of goods.

Let's put them in two tables.

fixed costs	Amount RUB

The product is sold at a premium, and the revenue will be 1,250,000 rubles.

Marginal income: 1,250,000 - 500,000 = 750,000

Marginal income ratio: 750,000 / 1,250,000 = 0.6

The break-even point is calculated: 270,000 / 0.6 = 450,000 rubles.

What should a store do if the break-even point is higher than sales volume?

Owner small shop may try to cut their costs, but such savings can be a critical business mistake. There is a chance to get into a "spiral of fall".

The essence of the “downward spiral” is that spending cuts can affect:

on the quality of service (for example, when reducing the position of a sales assistant);
on the quality of the product itself, which is sold (you will choose cheaper brands, and sell with a more serious margin).

If the quality deteriorates, you will realize that some of the customers have gone to a competitor, so the profit has decreased again. If the store owner cuts costs again, there will be no return to positive revenue: there will be even fewer customers, and as a result, the businessman will lose all the money invested.

There is a version that the concept of "Black Friday" arose in retail to mark the breakeven point. The fact is that most retailers receive the main income in the last five weeks of the year (preparation for the Catholic Christmas and New Year). Before that, it just works to break even. Profit allows you to make reserves "for a rainy day."

Do I need to take into account the wages of the owner when calculating the break-even point?

This question is asked by many business owners. The salary of the owner of the company must be included in fixed costs when calculating the break-even point, so wages will be fixed. How much is up to you to determine, but it should be higher than regular staff.

Many store owners end up failing because:

do not plan their own salary in the first year;
set their own minimum wage, less than a cashier or cleaner.

You can not pay a salary only if you are not a manager or a manager, but retire by hiring an outside manager. However, this rarely happens when we are talking about small businesses.

An example of calculating the break-even point for an enterprise

Let's calculate the break-even point for a small enterprise for the manufacture of liquid for washing car windows.

Let's take the following indicators:

fixed costs of a small business - 50,000 rubles;
variable costs for the manufacture of 1 container of liquid (raw materials) - 50 rubles;
wholesale price - 80 rubles.

Find the breakeven point: 50,000 / (80 - 50) = 1666.6.

Thus, the company needs to sell 1667 glass washer units in order to become profitable.

Calculation example for a catering company

The break-even point for a restaurant or cafe helps determine the required average check and the number of guests to be served per day. We advise you to determine this indicator before opening a restaurant, when planning and determining the prospects for the catering market.

Read more about the trends and prospects of the catering market

It is necessary to determine the variable and fixed costs, which include grocery purchases, rent, salaries of cooks, waiters and other employees, marketing costs.

For example, the fixed costs of a restaurant are 150,000 rubles, while the preparation of one dish (on average) requires products worth 130 rubles. The dish is sold with an extra charge of 280 rubles.

Let's calculate how many dishes need to be sold in order to reach zero profit.

150,000 / (280 - 130) = 1000 pieces per month. Therefore, it is necessary to serve 34 guests a day, who will eat one dish each.

If you need to calculate not the number of dishes sold, but the average check per day, then first we will determine the margin coefficient.

The amount of marginal income from one dish: 280 - 130 = 150 rubles.

Marginal income ratio: 150 / 280 = 0.53.

The break-even point is calculated as 150,000 / 0.53 = 283,018.9 rubles.

Thus, the restaurant should sell for 283,019 rubles per month, or 9,434 rubles per day.

Thus, if you raise the average check from 280 rubles to 350 rubles per day (for example, by persistently offering a drink), then the restaurant will need only 27 visitors to reach the break-even point.

Calculation example for services of a service company

Let's calculate the break-even point for a service company whose main indicators are as follows:

the average cost of one service is 3000 rubles;
a set of fixed costs (rent, staff, office expenses, advertising) - 250,000 rubles;
there are no variable costs.

In physical terms, the break-even point is calculated as follows:

BEP = Fixed costs / Cost per service = 250,000 / (3000 - 0) = 83.3. Thus, the service company needs to sell at least 84 units. services per month (that is, serve 84 customers) to break even.

In value terms, the break-even point coincides with the set of fixed costs, since there are no variable costs in the firm.

For ease of calculation, entrepreneurs are advised to use Excel spreadsheets, where they enter data on variable and fixed costs, as well as unit prices.

To calculate, you must use the formulas:

By changing the numbers in the table in the column "Production volume", we determine when releasing (selling) how many units the company will find the break-even point.

Thus, with the release (sale) of 12 products, the company "went to zero". The 13th unit is already profitable.

Conclusion. The break-even point can be calculated in various ways, in physical terms or in monetary units. When planning, the indicator helps to determine whether it is worth doing business at such costs. Also, the point of zero profit helps to plan motivational programs for sales assistants of the store and determine by how much the average check should be increased for the restaurant in order not to close due to losses.

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