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The easiest way to calculate BEP which I know is based on cost analysis. As a result every company have fixed costs which does not vary if quantity of produced goods changed and variable costs, which vary if quantity of produced goods changed. For this purpose we should use some mathematic formulas.
TC=total cost,
FC=fixed cost
VC=variable cost
Q=quantity
P=price
COGP=cost of good produced (for one item)
TR=total revenue.
As we know the break-even point (BEP) is the point (Q) at which cost or expenses (TC) and revenue (TR) are equal: there is no net loss or gain.. So, we should find the quantity of goods to be produced and sold at the same time which will brings to company the same level of revenue and cost. This means that TC=TR.
Total costs consists of fixed costs and variable costs:TC=FC+VC.
Variable costs consists of COGP cost of good produced times to (Q) quantity of produced goods: VC=COGP*Q.
Total revenue is price of good (P) times to quantity sold (Q): TR=P*Q. So, we have3 formulas:
1. TC=FC+VC
2. VC=COGP*Q
3. TR=P*Q, from which we should find the value of Q.
TC=FC+COGP*Q, or P*Q=FC+COGS*Q from where we get, that Q=FC/(P-COGP). In my opinion this is the easiest formula to find BEP.
If you can accurately forecast your costs and sales, conducting a breakeven analysis is a matter of simple math. A company has broken even when its total sales or revenues equal its total expenses.
Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs)
