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Break-even point in units of production. What is the break-even point and how to calculate it

Hello! Today we will talk about the break-even point and how to calculate it.

Any person who decides, first of all, thinks about how and make a profit. When administering entrepreneurial activity there are production costs - these are all the costs of manufacturing and marketing products. They are deducted from the total sales revenue in monetary terms, receiving a positive (profit) or negative (loss) result. For the successful functioning of the enterprise, it is necessary to know the border of the transition of revenue to profit. This is the breakeven point.

What is a break-even point

The volume of production at which all income received can only cover total costs - this is the breakeven point(from English break-even point - point of critical volume).

That is, this is minimum size revenue in monetary terms or produced and sold volume of products in quantitative terms, compensating only all production costs.

Reaching this point means that the company is not operating at a loss, but still not making a profit. The result of the activity is zero. With each subsequent unit of goods sold, the company makes a profit. Other names for this term: profitability threshold, critical production volume.

Why you need to know the break-even point

The value of this indicator is important for assessing the current financial condition of the enterprise, as well as for economic planning for the future. The breakeven point allows you to:

Determine the feasibility of expanding production, dealer network, mastering new technologies and types of products;
Assess solvency and financial stability, which is important for company owners, investors and creditors;
Track the change in the indicator in dynamics and identify bottlenecks in the production process;
Calculate and plan a sales plan;
Determine the allowable amount of revenue reduction or the number of units sold, so as not to go to a loss;
Calculate the impact of price changes, production costs and sales volume on the financial result.

What data is needed to calculate the break-even point

To correctly calculate the indicator, it is necessary to understand the difference between fixed and variable costs.

And also know the following information:

The price of 1 unit of products or services (P);
The volume of produced and sold (in the classical calculation model) products in physical terms (Q);
Revenue from products sold (B). To calculate the threshold in physical terms, this indicator is optional;
Fixed costs (Zpost.) - These are production costs that do not depend on the volume of production. For a long time they do not change.

These include:

Salary and insurance premiums for engineering and technical workers and management personnel;
Rent for buildings, structures;
tax deductions;
Depreciation deductions;
Payments on loans, leasing and other obligations.

5. variable costs (Zper) is the cost of production, which increases or decreases depending on the increase or decrease in the production of goods or the volume of services provided. The value of the indicator can vary widely, instantly responding to any changes in the company's activities.

These costs include:

The cost of raw materials, components, spare parts, semi-finished products;
Salary and insurance contributions of the main production workers and personnel working on piecework wages;
Electricity, fuels and lubricants (POL), fuel;
Fare.

The division of all costs into fixed and variable is conditional and is used in the classical model for calculating the break-even point. The specificity of a number of economic entities implies a more precise allocation of costs in certain types in economic terms.

In particular, production costs can additionally be:

Conditionally permanent. For example, the rent of a warehouse is a fixed component, while the cost of storing and moving inventory is a variable component;
Conditional variables. For example, the payment for depreciation (wear and tear) of capital equipment is a constant value, and the cost of planned and current repairs is a variable.

Cost accounting systems for different enterprises differ (for example, standard costing, direct costing, variable costing, etc.). There is a division of variable costs into individual ones for each product, a distinction between fixed costs and individual costs for each product, etc.

This article will discuss in detail the classic model for calculating the break-even point for a single product, as well as an example of a calculation with several types of goods.

Formula for calculating the indicator

The break-even point (abbr. BEP) is calculated mathematically both in monetary and physical terms. It all depends on the characteristics of a particular enterprise. When calculating according to the classical model with the participation of one product (or several - then averaged data are taken), assumptions are taken into account for a number of factors:

Fixed costs within a given volume of production remain unchanged (this level is called relevant). This also applies to variable costs and prices;
Output and cost finished products increase or decrease linearly (in direct proportion);
The production capacity over a given calculation interval is constant;
The product range does not change;
The effect of inventory size is immaterial. That is, the value of work in progress has minor fluctuations and all manufactured products are released to the buyer.

This economic indicator should not be confused with the payback period (point) of the project. It shows the time (months, years) after which the company will begin to make a profit from the investment.

Break-even point in monetary terms

The calculation formula will show the minimum amount of revenue that will pay off all costs. The profit will be zero.

Calculated as follows:

In the denominator, the difference between revenue and variable costs is the contribution margin (MA). It can also be calculated for 1 unit of production, knowing that revenue is equal to the product of price and volume:

B=P*Q

MD for 1 unit. = P - Zper. for 1 unit

To determine the break-even point using a different formula, find the marginal income ratio (Kmd):

The final value in both formulas will be the same.

Break-even point in physical terms

The calculation formula will show the minimum sales volume to cover all production costs with zero profit. Calculated as follows:

Each next sold unit of goods in excess of this critical volume will bring profit to the enterprise.

At known value VERNAT. you can calculate VERDEN.:

VERDEN. = VERN. *P

How to Calculate Break Even Point in Excel

IN Microsoft program Office Excel to carry out the calculation of the break-even point is very convenient. Between all the data it is easy to establish the required formulas and build a table.

Table order

First you need to enter the cost and price indicators. Let's pretend that fixed costs are 180 rubles, variable costs 60 rubles, the price for 1 unit of goods is 100 rubles.

The value in the columns will be as follows:

We fill in the volume of production ourselves, in our case we take the interval from 0 to 20 pieces;
Fixed Costs =$D$3;
Variable costs =A9*$D$4;
Gross (total) costs = B9 + C9;
Revenue (income) \u003d A9 * $ D $ 5;
Marginal income \u003d E9-C9;
Net profit (loss) = E9-C9-B9.

These formulas in the cells must be carried out throughout the column. After filling in the values by production volume, the table will take the following form:

Starting from the 5th unit of production, net profit became positive. Prior to this, revenue did not cover the total (total) costs of production. In this case, the profit is equal to 20 rubles, that is, formally, this is not a completely correct break-even point. The exact value of the volume at zero profit can be calculated:

That is, the break-even point is mathematically calculated at a production volume of 4.5 units. However, the economist takes into account 5 pcs. and the value of the proceeds is 480 rubles. is considered a break-even point, since to produce and sell 4.5 pcs. goods is not possible.

Let's add 2 more columns to the table with the calculation of the safety edge (safety margin, safety margin) in monetary terms and as a percentage (KBden and KB%). This indicator indicates the possible size of the decline in revenue or production to the breakeven point. That is, how far the enterprise is from the critical volume.

Calculated according to the formulas:

Vfact. (plan) - actual or planned revenue;
Wtb - revenue at the break-even point.

IN this example the value of actual revenue is taken. When planning the volume of sales and profit, they use the value of the planned revenue to calculate the required margin of safety. In the table, these columns will be calculated as follows:

Safety edge in rub. = E9-$E$14;
Safety edge in % = H10/E10*100 (the calculation is carried out starting from the production volume of 1 piece, since division by zero is prohibited).

A safe margin is considered to be a margin of safety above 30%. In our example, the production and sale of 8 pcs. goods and more means a stable financial position of the company.

The final table will look like:

Graphing algorithm

For clarity, we will build a graph. Select Insert/Scatter Plot. The data range includes gross (total) costs, revenue, net profit. The horizontal axis will be the volume of production in pieces. (it is selected from the values of the first column), and along the vertical - the sum of costs and revenues. The result is three slanted lines.

The intersection of revenue and gross costs is the break-even point. It corresponds to the value of net profit 0 (in our example, 20 rubles with a quantity of products of 5 pieces) horizontally and the minimum required value of revenue to cover total costs vertically.

You can build a more detailed schedule, which includes, in addition to the above indicators, fixed, variable costs and marginal income. To do this, the specified rows are sequentially added to the data range.

How to use the finished table in Excel

To calculate the break-even point, you just need to substitute your initial data, and also enter the values of production volume in the first column. If there are a lot of them, then to speed up the work, you can write in cell A10, for example: \u003d A9 + 1 and draw this formula down. Thus, the interval between volume values will be 1 piece. (you can enter any number).

Download a ready-made excel file for calculating the break-even point

Break-even point calculation example

For example, let's take an entrepreneur selling watermelons in summer stalls. He has one product, the price is the same in different parts of the city. Watermelons are purchased in bulk in the southern regions and delivered for sale in central Russia. The business is seasonal but stable. The initial data is as follows:

It is necessary to determine the minimum allowable volume of sales of watermelons and the threshold value of revenue to cover all costs.

The order of calculation by the mathematical method

The price of 1 watermelon is taken as an average, since they all have different weight. These fluctuations can be neglected. To calculate the break-even point in physical terms, we use the well-known formula:

To calculate the break-even point in monetary terms, you need to know the number of watermelons sold per month and the amount of variable costs for this volume:

Q per month = 36000/250 = 144 watermelons,
Zper. per volume per month = 130 * 144 = 18720 rubles.

The first two values give a break-even point at zero profit, but the volume of watermelons sold will be 91.67 units, which is not entirely correct. The third value is calculated based on the critical sales volume of 92 watermelons per month.

The current monthly income and sales volume are above the break-even point, therefore the entrepreneur is working at a profit.

Additionally, we determine the value of the safety edge:

A level above 30% is considered acceptable, which means that the business is planned correctly.

The procedure for calculating the graphical method

The break-even point can also be calculated using a graphical method, without preliminary calculations. To do this, the volume of output in pieces is plotted along the horizontal abscissa axis, and the sums of revenue and total costs (slanted lines) and fixed costs (straight line) are plotted along the vertical ordinate axis. Then they draw manually or build a diagram on a computer according to the initial data.

As a result of plotting the graph, the break-even point will be at the intersection of the lines of revenue and total costs. This corresponds to a sales volume of 91.67 watermelons and a revenue of 22916.67 rubles. The shaded areas show profit and loss zones.

The above calculation model for one product is characterized by simplicity of analysis and calculation of the break-even point. Well suited for companies with a stable market without sharp price fluctuations.

However, the above calculation has the following disadvantages:

Seasonality and possible fluctuations in demand are not taken into account;
The market may grow due to the emergence of progressive technologies, new marketing moves;
Feedstock prices may change;
For regular and "large" buyers, it is possible to provide discounts.

Thus, the break-even point calculation data is considered in conjunction with many factors and other economic indicators.

Break-even planning in the enterprise

Based on the obtained values of the break-even point, an analysis of the current market conditions is carried out and the most significant factors influencing . Planning for further work consists in forecasting production costs and a competitive market price. These data are used in the calculation of the production plan and break-even, which are included in the total financial plan companies. For the successful functioning of the enterprise, control over compliance with the approved goals is carried out.

Successive stages of break-even planning:

Analysis of the current state of affairs in the company and sales . Strong and weak sides and are determined taking into account internal and external factors. The work of supply and sales services, the level of management at the enterprise, rationality are evaluated production process. Of external factors, market share is taken into account, company-controlled, activities of competitors, changes in consumer demand, political and economic situation in the country, etc.;
Forecast of future prices for manufactured products, taking into account the assessment of all factors from paragraph 1 . Allowable margin range is planned. Alternative options for selling to new markets or restructuring the enterprise to produce similar products in the event of an unfavorable situation in the current market are being explored;
Calculate fixed, variable costs and production costs . The volume of work in progress is planned at all stages of production. There is a need for basic and working capital and sources of their acquisition. Additional possible expenses on loans, and other obligations are also taken into account in production costs;
Breakeven point calculation in progress . The required value of the safety edge is determined. The more unstable external factors, the greater the margin of safety should be. Next, the volumes of production and sales of goods at the level of the safety edge are calculated;
Planning pricing policy companies . Prices are determined for products that will achieve the required sales volume. Once again, the break-even point and safety edge are recalculated. If necessary, paragraphs 3 and 4 are repeated in order to find reserves for cost reduction in order to achieve the required safety margin values;
Adoption of the final break-even plan and sales by period . The data is validated by the critical volume point.
Break-even control , divided into several components: control of all items of expenditure, total cost, sales plan, receipt of payments from customers, etc. The company should always have an understanding of how the current financial situation corresponds to the planned break-even level.

Calculation example for a store

Using the example of a store that sells several types of goods, we will consider a variant of solving a multi-product problem. These are musical instruments and related products: electric guitar (A), bass guitar (B), sound amplifier (C), acoustic guitar (D). The store has fixed costs as well as individual variable costs for each type of product. They are purchased from different suppliers and bring their own amount of revenue.

The initial data is as follows:

Product	Revenue from the sale of goods, thousand rubles	Individual variable costs, thousand rubles	Fixed costs, thousand rubles
A	370	160	400
B	310	140
IN	240	115
G	70	40
Total	990	455	400

The store is quite large, but the revenue structure by types of goods does not change significantly. The assortment and prices for them are different, therefore it is more rational to calculate the profitability threshold in monetary terms. To solve this problem, we use formulas and methods from direct costing, which assumes a range of break-even points for such a case:

Kz. per. - coefficient of the share of variable costs in revenue.

In the following table, we will calculate it for each type of product and general for the entire store. And also calculate the marginal income (Revenue - individual variable costs) and its share in revenue:

Product	Marginal income, thousand rubles	Share of marginal income in revenue	Kz. per. (share of variable costs in revenue)
A	210	0,37	0,43
B	170	0,55	0,45
IN	125	0,52	0,48
G	30	0,43	0,57
Total	535	0,54	0,46

After calculating Kz. per. for the entire store, the average break-even point will be equal to:

Now let's calculate this indicator according to the most optimistic forecast. It is called marginal ordering in descending order. The table shows that the most profitable products are A and B.

Initially, the store will sell them and the total marginal income (210 + 170 = 380 thousand rubles) will almost cover the fixed costs (400 thousand rubles). The remaining 20 thousand rubles. will be received from the sale of product B. The break-even point is equal to the sum of the proceeds from all listed sales:

The most pessimistic sales forecast is the marginal ascending order. At first, goods D, C and B will be sold. The marginal income from them (125 + 30 + 170 \u003d 325 thousand rubles) will not be able to cover the fixed costs of the store (400 thousand rubles). The remaining amount is 75 thousand rubles. will be received from the sales of product A. The break-even point will be equal to:

Thus, all three formulas gave different results. In essence, the optimistic and pessimistic forecasts give an interval of probable break-even points for the store.

Additionally, we calculate the margin of safety in monetary terms and as a percentage of the average break-even point:

Although the store is profitable, the margin of safety is below 30%. Ways to improve financial indicators are to reduce variable costs and increase sales for goods D and C. And you also need to check fixed costs in more detail. Perhaps there are reserves to reduce them.

Calculation example for an enterprise

For example, let's take a 1 liter household solvent production facility. The company is small, prices rarely change, so it is more rational to calculate the profitability threshold in physical terms (number of bottles).

The initial data is as follows:

The calculation will be as follows:

The resulting value is very close to the actual volume (3000 pieces).

Additionally, we calculate the safety edge in pieces (according to a formula similar in monetary terms) and as a percentage:

Thus, the enterprise operates on the verge of break-even. Urgent measures are needed to improve the financial situation: a review of the structure of fixed costs, perhaps the salary of management personnel is too high. It is worth understanding in detail the costs that form variable costs. The primary direction of their reduction is the search for new suppliers of raw materials.

Currently in international practice when planning profit, the method of finding the “break-even point” is used, i.e. the level of production at which income from the sale of goods / services corresponds to production costs and a further increase in output gives the organization a profit, and a decrease in volume - a loss.

Thus, the break even point is the level of production at which costs (expenses) correspond to the proceeds from the production of goods / services. In reality, this is not a “point” at all, but the volume of goods / services produced, at which the income from the sale of these goods / services will be equal to the costs of producing these goods / services. At its core, the "break-even point" is the result of the intersection of the income line and the expense line on the coordinate axis.

In order to comprehend and expediency of evaluating and applying the “break-even point” category in life, you first need to have a specific idea of such categories as: variable costs and fixed costs, the volume of goods / services sold, the unit price of a product or service, gross profit and gross income.

In accordance with the classification of costs according to the fact of their dependence on the output of goods or services produced, variable costs and fixed costs should be distinguished.

When considering this scheme, it is necessary to consider the composition of the company's costs for the production and sale of products. To do this, it is necessary to classify all costs into the following two groups:

1. Variable costs are the costs of the firm, the value of which is proportional to the quantity of products sold.

2. Fixed costs are the expenses of the company, the value of which does not depend on the quantity of products sold, but depends on the length of the time period for which the economic activity firms.

The group of variable costs includes the following expenses of the company:

For the purchase of raw materials, materials, semi-finished products and purchased components necessary for the production of products;

For the fuel and energy needed to technological process production of products;

For wages and bonuses to workers directly involved in the production of products;

Transport and trade commissions;

For after-sales service, etc.

Fixed costs include the following:

Depreciation deductions;

operational;

Administrative and managerial;

For the remuneration of administrative and managerial personnel (AUL);

For preventive maintenance, reconstruction and modernization of buildings, structures, technological equipment;

For heating and lighting of buildings and structures;

For property insurance;

For marketing activities of the company;

Interest costs;

Rent, etc.

Finding the break-even point is one of the most significant data items taken into account when evaluating the feasibility of project implementation. The project initiator needs to know at what level of production the project breaks even, i.e. it is necessary to determine such a critical point at which a decrease in the level of production below such a point is unprofitable for the enterprise, and above it is profitable.

When finding the break-even point, they operate with indicators of variable costs, fixed and total costs. But it should be borne in mind that there are no absolutely fixed costs, since there is an increase in rental rates, an increase in electricity prices, labor costs, etc. For this reason, the break-even point is calculated separately for different periods if changes were recorded in the structure of operating costs or in the organization's financing system.

At its core, the break-even point is the value of sales at which the organization does not incur losses, but also does not receive net profit, that is, gross income is sufficient to compensate for fixed costs, and there is no net profit.

Break-Even Point = Total Fixed Costs / (Unit Price of Goods/Services - Variable Costs of a Goods Unit).

Provided that the demand for manufactured products / services is lower than the number of products produced, forming a break-even, production will never be self-sustaining. The break-even study serves to compare the application of production capacity, in which sales revenues and production costs are the same.

The proceeds from the sale of goods / services at the break-even point determine the cost of non-profit sales, and the price of the product / service in this situation plays the role of a break-even selling price. Provided that manufacturing program contains a variety of products / services, then for any break-even level of sales will be possible various options calculation of prices for non-profit goods/services, but there will be no total break-even price.

In order to determine the break-even value, the following requirements must be met:

Production and marketing costs refer to a function of production volume or a function of sales;

The volume of production corresponds to the volume of sales, i.e. there are no carryovers of unsold goods or services not rendered;

Fixed current costs are the same for different volumes of production in a particular time period;

Variable costs change with the volume of production, for this reason, the total costs change similarly;

Selling prices for products/services for all output options are stable over time. Therefore, the total cost of sales is determined by the level of selling prices and the volume of products or services sold;

The size of selling prices per unit of output, the level of fixed and the level of variable costs remain stable, i.e., the price elasticity of demand for inputs is zero;

The break-even level is determined for each product, with a variety of the list of goods, its structure should remain unchanged.

It should be noted that the above limitations are not always observed in life.

Also, the break-even point is the subject of sensitivity analysis, taking into account the various values of fixed costs and variable costs, as well as selling prices.

The break-even production schedule is directly displayed in Figure 1.

Rice. 1.

Dividing costs into fixed costs and variable costs practical value only relative to a certain volume of production (sales) in a certain relevant time period.

From the presented graph, the following conclusions can be drawn.

1. The organization will make a profit, provided that it sells goods or services on the commodity market more than the critical volume, which can be seen on the x-axis.

2. The moment of intersection of direct sales from sales and direct total costs is usually defined as the break-even point (or turning point), after which the organization will become profitable. The bottom left triangle shows the loss area, and the top right triangle shows the profitability area.

3. A straight line parallel to the abscissa axis displays the fixed costs of the enterprise, and a line parallel to the line of total costs - variable costs. The break-even study is applied from the standpoint of the projected option for the development of the enterprise.

In the study of the break-even of an investment project, the definition of the break-even indicator (KBU) is essential:

where OI - total costs (the sum of conditionally fixed costs and conditionally variable costs); PI - conditionally variable costs; VP - proceeds from the sale of products / services.

The project is considered expedient if, in the calculations for the project, the total break-even ratio corresponds to the level of 0.61-0.71 after the commissioning of the design capacities. If this indicator more, this indicates a lack of stability this project to fluctuations in demand for goods/services at the corresponding step of the analysis.

It must be borne in mind that the achievement of break-even values at each stage does not guarantee the effectiveness of the project as a whole (sufficiency of net discounted income project). On the other hand, high break-even levels at individual stages of the calculation cannot be analyzed as a factor in the unfeasibility of a business project (for example, at the stage of commissioning capacities or during overhaul significant non-current fund, they can be more than 1).

The break-even study is applicable when introducing a new product into life, upgrading equipment, forming a new enterprise (or branch), transforming the profile of its commercial activity, and in other moments. Break-even data is displayed in the feasibility study, as well as the business plan of the investment project being implemented.

Every business involves careful planning and calculations. And it is very important to know exactly when the losses will be completely covered and the business will start working for real profit. The break-even point demonstrates efficiency commercial project, its payback period, investment prospects, so being able to calculate it is very important both for someone who is going to open a business and for him.

The data obtained determine the required volumes of products sold, in which the project will cover all own expenses without making a profit. The calculation of the point is important for determining the level of solvency and stability of the company. That is, this is a real opportunity to understand how many products / services need to be sold in order to break even when the profit fully covers the costs. If the percentage is exceeded, this indicates a profit, if not achieved, it is unprofitable.

It is important to calculate the indicator not only for a new enterprise, but also for expansion: increasing turnover, manufacturing new products, establishing sales networks, decisions to change prices, etc. Any decision should be based on accurate calculations and pursue development, increase in profits.

Determination of the break-even point allows you to:

Making calculations to find the exact indicator

The calculation is carried out using indicators related to different types of costs:

1) Permanent - everything that is spent regardless of the success of sales, the number of goods produced / services provided, the decrease / increase in the volume of operations (additional and basic salary of employees with deductions, depreciation costs, rent, etc.). Their change can be affected by a decrease / increase in capacity, the amount of rent, inflation.

2) Variables - increase as production capacities increase (materials, semi-finished products, components, electricity and fuel, wages of additional and main staff). Changes in payments are affected only by production volumes.

The break-even point is calculated by the formula,

can be displayed in price and physical terms. To calculate everything, you must enter the following values:

Рн - sales volumes in kind
B - proceeds from sales
Zpost - fixed expenses
Zper - variable expenses
C - price per piece of products
ZSper - average variable spending
Тbn - break-even point, presented in physical terms
Tbd - in monetary terms

Features when performing calculations

When we are talking proceeds received, we must assume that all purchased or created products are sold. Stocks in warehouses are not taken into account.
Variable and fixed costs may or may not directly depend on sales volumes. So, it happens that to increase productivity, new real estate is acquired, stores expand, bills for public utilities etc.
An indicator can be searched for a specific average product or the whole project

How to make calculations

Point search can done in excel, for which all the data and the formula are entered in the table so that . The table can be downloaded on the Internet at many sites that already offer ready-made algorithms, where you just need to enter data.

Useful information can give you a chart. To compile it, a revenue line, lines of fixed and variable costs are drawn. The horizontal axis shows production/sales volumes, the vertical one shows expenses and profits in financial terms. The fixed and variable costs are then added together to get the gross cost line. Thus, the break-even point is located where the gross cost and revenue lines intersect.

The graph shows the change in all indicators over time and in accordance with production volumes.

“How many products need to be produced and sold? What price to set for it to start making a profit? These questions concern every entrepreneur. You can give an answer by calculating the break-even point (a situation in which expenses will equal income).

After this point is found, it is possible to start optimizing the activity of the enterprise: to produce more or less products, or to change the price.

At the moment when the revenue exceeds the break-even point, it will be possible to say that the company is making a profit. Otherwise, it incurs losses.

Economic model of the break-even point

To calculate the break-even point, several axioms should be defined:

Expenses and incomes are described in a linear function (i.e., the rate of change is constant);
In the analyzed period, prices, as well as production costs, remain unchanged;
The structure of manufactured products, as well as production capacity do not change;

3 stages of calculating the break-even point according to A. D. Sheremet

Each calculation requires a certain sequence.

So, the Russian economist A. D. Sheremet identified 3 stages to optimize the activities of an enterprise by calculating the break-even point:

Gather profit information first received by the enterprise, as well as the costs incurred;
The next step is to calculate the fixed and variable costs., find the break-even point and safety zone;
The final step should be to determine the quantity of products necessary to implement to ensure the financial stability of the enterprise;

It can be seen from this that in the end, for the enterprise, such a minimum income should be determined at which it will be able to continue its activities.

Ways to calculate the break-even point

The main indicators that will have to operate when determining the break-even point are:

P is the price of the goods;

X is the volume of manufactured products required for sale;

FC - fixed costs (do not depend on the number of products produced, for example, wages of employees);

VC (X) - variable costs (increase with each unit of output);

S - revenue for a certain period;

R - profitability.

You can find the break-even point in various ways, depending on the information available.

Method 1: Costs and sales are known

Having information about the costs, as well as the quantity of products that need to be sold, it is possible to determine the minimum price for the product, which allows the company to work "to zero".

The formula itself looks like this:

P = (FC + VC(X)) / X.

The second way: the price and costs are known

Here, knowing the price and costs, the volume of sales of products is determined, which will allow you to get zero profit.

Formula:

X = FC / (P - VC).

The absence of the variable "(X)" is explained by the fact that the formula takes into account only the cost of producing 1 unit of output.

In practice, the price of goods is set in advance, based on their costs and market realities, so determining the quantity is the most common task facing management.

Calculation of the break-even point for the service sector and trade

The way to determine the break-even point for the service sector and trade is complex and uncertain in. The number of goods in the sphere of trade can reach several thousand, and it is impossible to calculate the cost of each product.

In the service sector, costs cannot be precisely determined due to the uniqueness of each service provided. In these cases, it is preferable to use profitability indicators. Profitability is the difference between the price and the cost of production.

Formula:

S=FC/R.

Break Even Point Calculation in Excel

To perform the calculation, it is necessary to determine the main indicators.

Let's assume that:

Fixed costs = 100;
Variable costs = 50;
Price = 75;

You need to create and fill in the table:

Fixed costs = C 2
Variable cost = A 9*$C$3
Total costs = B9+C9
Income = A 9*$C$4
Net income = E9 - D9

Based on this table, it can be seen that the break-even point is reached when the 4th product is released, and the subsequent release increases the profit of the organization.

The practical benefits of using the break-even point

Determination of the break-even point is one of the main tasks facing the managers and employees of the enterprise.

Thus, determining the equilibrium level of income and expenses will allow entrepreneurs-startups who enter the market with a unique product to set the optimal price for their product.

IN large organizations It is very important to establish the process of production and sale of products. The long-term nature of the activity requires careful attention to the planning of production and sales of products.

For example, a beverage manufacturer must determine the price and volume of production that will best meet demand and maximize profits. Too much production leads to extra costs, and too little supply leads to lost profits.

In addition to the organizations themselves, this indicator is used by investors, banks, business incubators to resolve the issue of providing Money or premises.

Strengths and weaknesses of the break-even model

Despite this, this model has serious drawbacks:

The linearity of the function does not allow taking into account changes occurring in the market. Characteristics such as seasonality, inflation, increased competition are not displayed in any way on the chart;
Business costs can change over time, which is also not taken into account when calculating the break-even point;
The limitation of demand only by the price in the model does not reflect the real situation on the market. Demand is also influenced by other important characteristics of the product, such as quality or fashion.

Determine the breakeven point

To determine the break-even point, you can use the chart. To construct it, it is necessary to have information about the constants and variable costs, as well as prices for 1 unit of production.

The graph shows 2 straight lines:

Expenses;
Number of products (note - tables);

At the point of their intersection there will be a break-even point. The higher the direct revenue is relative to it, the more profit the organization will receive.

Building a break-even point chart

Break Even Point Calculation for a Grocery Store (Example)

To calculate the break-even point of the store, it is necessary to determine its fixed costs. Let's take a grocery store as an example.

Let's assume that:

Room rental - 80,000 rubles;
Wage sellers - 60,000 rubles;
Insurance premiums (30%) - 18,000 rubles;
Utility costs - 10,000 rubles.
Purchase of food - 800000

In total, the costs will amount to 968,000 rubles. The rate of return will be set at 50%.

According to the formula, we get:

S = 968000 / 50% = 1936000 rubles

With an average check of 500 r. the store will need to serve 3,872 customers per month.

Calculation of the break-even point for an enterprise (example)

Suppose an enterprise produces 1 type of product, the cost of 1 unit of which is 50,000 rubles. The price is 100,000 rubles. fixed costs- 2000000 r.

It turns out:

X = 2000000 / (100000 - 50000) = 40 units.

Outcome

Summing up, it should be said that the break-even point model is useful for planning the activities of an organization: it allows you to determine the required volume of output to make a profit, and also helps to determine the price of a product.

In addition, the relative simplicity of such a calculation allows you to derive the necessary indicators quite quickly and literally on your knee.

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 has a strategic goal to maximize profits, 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 determine critical level 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 ;
identify 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, you can find out the minimum number of 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 obtaining zero profit, and the second minimum level 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 technological goals	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 involved 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

Break even point and stock financial strength are related 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.

Through analysis financial stability, one can judge financial position enterprises in general.

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.