The break-even point refers to the amount of revenue required to cover a business's fixed costs and variable costs which means it helps you develop e.g. Your break-even point provides you with important benchmarks in future planning. While, in accounting, it is used to determine the amount of production at which the costs of production equal the revenues for a product, in investment, the break-even point is reached once the market price of an asset equals its original cost. BEFORE: Break-even Point (Units) = 550,000 / (100 – 60) = 13,750 units.Ĭalculating the break-even point has different functions in different areas of business.This means it takes fewer units sold to break even: To break even, company A would have to produce 129,032 units and generate GPB 322,580 in revenue.Ĭompany B (with fixed costs of GPB 550,000 and product price of GPB 100) wants to reduce its variable costs by GPB 20, from GPB 60 to GPB 40. To calculate the break-even point in monetary value, the formula would look as follows: 200,000 + (0.95 x 129,032) = c.To calculate the break-even point in units, the formula would look as follows: 200,000 / (2.5 – 0.95) = 129,032 units.These variable costs add up to EUR 0.95 per unit. The costs for factory labor and raw materials vary, depending on the number of products sold by Company A. Sales price: Sales price refers to how much your company charges for a product or unit.Įxample of using the Break-Even Point FormulaĮxample 1: Company A spends GPB 200,000 on manufacturing costs.Contribution margins: Contribution margins refer to the selling price per unit, minus the variable cost per unit.Variable costs: Variable costs refer to any cost that depends on the number of products or services sold by your company (e.g., materials for production).Fixed costs: Fixed costs refer to expenses independent of the number of sales (e.g., rent, salaries).Key variables in the formula for BEP include: How to Calculate Break Even Point Formula? You need your company's BEP in units to use this method. Based on sales: Break-even Point (Monetary Amount) = Fixed Costs + (Cost per Unit x BEP in Units).Based on units: The formula for this method is as follows: Break-even Point (Units) = Fixed Costs / (Revenue Per Unit – Variable Cost Per Unit).Generally, there are two methods of calculation, depending on business requirements: Calculating your business's break-even point can help set prices and develop budgets. Identifying your company's break-even point is important as it helps you understand whether you need to, for example, increase your prices or cut down on expenses by working on lowering your company's total fixed and variable costs to break even or, even better, make a profit. Break-even points are used in different areas of business. income generated to cover all expenses in a certain period, can be measured in monetary value or hours worked by a company's staff. The break-even point refers to the amount of revenue required to cover a business's fixed costs/expenses and variable costs/expenses. This is why we've compiled this short guide to what the break-even point is, the formula, how to calculate it, and usage examples. This calculation can be important as it helps your business to manage its costs better and improve your financial future. As a small business owner or if you are involved in business accounting, you may have come across the concept of the break-even point.
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