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Break Even point =
it is the point when Total Revnue = Total Costs
Sales of Break Even Point Qty= Fixed Assets ÷ Contribution margin
Contribution margin = Sales Price Per Unit - Variable Cost Per Unit
Sales of Break Even Point in amount = Fixed Assets ÷ Contribution margin %
Contribution Margin % = (Sale per unit - Variable Cost Per unit ÷ Sales Price Per Unit) ×100
Point of balance between loss & profit.
The break-even point in sales dollars can be calculated by dividing a company's fixed expenses by the company's contribution margin ratio.
The contribution margin is sales minus variable expenses. When the contribution margin is expressed as a percentage of sales it is referred to as the contribution margin ratio. (When we use the term "fixed expenses" we mean the company's total amount of fixed costs plus its fixed expenses. When we say "variable expenses" we mean the total of the company's variable costs plus its variable expenses.)
Let's illustrate the break-even point in sales dollars with the following information. A company has fixed expenses of $100,000 per year. Its variable expenses are approximately80% of sales. This means that the contribution margin ratio is20%. (Sales minus the variable expenses of80% of sales leaves a remainder of20% of sales. In other words, after deducting the variable expenses there remains only20% of every sales dollar to go towards the fixed expenses and profits. ) The fixed expenses of $100,000 divided by the contribution margin ratio of20% equals $500,000. This tells you that if the company has sales of approximately $500,000 it will be at the break-even point—the point where sales will be equal to all of the company's expenses.It is wise to test your calculated break-even point. In our example the sales needed to be $500,000.
If the variable expenses are80% of sales, the variable expenses will be $400,000 (80% of $500,000). This leaves $100,000 as the contribution margin in dollars. After subtracting the fixed expenses of $100,000, the net income will be zero.
Fixed costs / contribution margin per unit
A business could be turning over a lot of money, but still be making a loss. Knowing the break-even point is helpful in deciding prices, setting sales budgets and preparing a business plan. The break-even point calculation is a useful tool to analyze critical profit drivers of your business including sales volume, average production costs and average sales price.
By understanding where your break-even point is, you are able to work out:
· How profitable your present product line is
· How far sales can decline before you start to incur losses
· How many units you need to sell before you make a profit
· How reducing price or volume of sales will impact on your profits
· How much of an increase in price or volume of sales you will need to make up for an increase in fixed costs.
For that purpose I show the simplest formula which uses your fixed costs and gross profit margin to determine your break-even point.
Before start to calculate We must figure that fixed costs exist regardless of how much you sell or don't sell, and include expenses such as rent, wages, power, telephone accounts and insurance.
The Following Steps shows how to calculate the Break Even Point:
First, use the following Formula to calculate the gross profit:
Gross profit = sales revenue - cost of goods sold
Second, use the following Formula to calculate the gross profit Margin:
Gross profit margin = (gross profit ÷ sales revenue) x100
Finally, Use this formula to calculate your break-even point:
Break-even point = fixed costs ÷ gross profit margin
total sales-MOS sales
BEP IN UNIT = Fixed costs / contribution margin per unit
after this
we multiply the result by the price to attain BEP in dollars
