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Break even point is one where revenue equal to cost or there is no profit or no loss.
IMPORTANCE:
a. to know the profitability for a particular product line
b. if sales decline before you start to incur losses.
c. how many units to be sold before you make profit
d. if reducing prices or volume of sales impact on profit
e. increase in price or volume of sales will need to make up for an increase in fixed cost
f. profuct buy or make decison
g. to know the cost, volume and profit relations.
METHOD TO PREPARE FOR NON FINANCIAL PEOPLE:
a. to know the fixed cost - rent, salaries, insurance, telephone etc..
b. to know the variable cost or expenss - marginal cost
c. to know fixing the selling price
METHOD:
BEP = fixed cost / (selling price - variable expenses)
OR
BEP = fixed cost / gross prift margin
GP margin is the percentage of sales after deducting the procduction cost from the total sales amouint.
Break even analysis is of absolute importance to business owners who are just opening their new venture or business. Without this, you will be paddling in the vast ocean of uncertainty about your business. Break even analysis is not that complicated, we only need to remember these three things ;
1. Fixed Cost
2. Selling price/unit
3. Variable cost/unit
Break Even point = Fixed Cost / (Selling Price/unit - Variable Cost/unit)
To knw the Break Even Point..Fixed cost equals of manufacturing cost..Turnover above the BEP is the profit.
