What is Break-Even Point (BEP)?īreak-Even Point means to calculate financial feasibility for launching a new product or starting new ventures. You can also use break-even analysis to calculate the Payback Period or the amount of time required to break even. Hence, you can consider the point when Total Cost equals Total Revenue. It can also be defined as the point at which an investment will start generating positive returns. Usually, the Break-Even Point is the number of units you have to sell or the total amount of sales required to cover your costs. Benefits of Performing Break-Even Analysis.Content of Break-Even Analysis Template.Break-Even Analysis Template (Excel, Google Sheet, OpenOffice, Apple Numbers).How To Find BEP In Terms of Sales/Revenue?.Example – BEP In Terms Of Physical Units.How To Find BEP In Terms Of Physical Units?.In other words, it is the amount sales can decrease before a company reaches the break-even level of output and fails to make a profit. It considers the number of units produced and the number of units that need to be produced in order to achieve the break-even level of output. The margin of safety is the difference between the current level of output and the breakeven level of output. This means that company E has to produce 9 e-bikes a month to reach the break-even level. The point where the revenue and total costs lines cross is the break-even level of output. ![]() Lastly, we have to plot revenue according to the number of units produced (R). Then, adding them together, we arrive at total costs (TC). To create a break-even chart (see Figure 1), we need to plot both fixed costs (FC) and variable costs (VC). Break-even Chart for Company E, StudySmarter How many e-bikes per month does the company have to produce and sell to reach the break-even level of output?įigure 1. The cost of materials per e-bike is £400. A rental cost of a factory is £8,000 a month and the cost of heat and light there is £6,000 a month. It is the selling price minus variable costs.Ĭompany E produces e-bikes. Total costs are fixed costs and variable costs added together.Ĭontribution per unit is total revenue from the sale of one unit. Variable costs are costs that rise and fall in direct proportion to the number of units produced, for example, raw materials used in production or direct labour. There are two ways to calculate the break-even level of output:Ģ) Break-even chart (including variable costs, fixed costs, total costs and revenue)įixed costs are costs that remain the same (in the short term) regardless of the number of units produced, for example, rent and rates. How to calculate the break-even level of output? ![]() To conduct the break-even analysis, it is essential to calculate the break-even level of output. When a business achieves a break-even level of output and sales, it recovers all of its costs.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |