tie– this is the scale of production and subsequent sale of products, where costs are covered by revenue, and each subsequent unit of goods begins to bring profit to the company. I mean, this is the moment when production covers all losses and brings income.
The calculation of the break-even point through the formula makes it possible to understand the minimum sales volume that would make profit possible, justify a change in pricing policy and analyze the feasibility of introducing new technologies, sizing the company, planning or postponing the development of certain areas of business. This helps the company better navigate its own financial capabilities. We'll find out how to calculate a company's break-even point and point out a few more arguments to explain why it's worth doing this.
See also: How to calculate your return on sales? The effectiveness of formula application.
How to sell a business idea? Addendum
Break-even point: formula and calculation in different ways
It is important to say that it is through this indicator that investors and creditors analyze and evaluate your business. Taking into account the solvency, the stage of development and directly the stability of the enterprise. The break-even point is calculated in different ways and is measured in monetary or physical terms.
Calculation options:
- through programming;
- by formula and calculations on a piece of paper or using a calculator;
- in Excel or Google Spreadsheet (it is possible to build a graph tie in Excel).
Whichever method you choose, you need to know more than just the formula. Several other basic indicators of your company are also taken into account. Namely:
- The cost of selling each unit of product or service (average check is also suitable).
- Recipe.
- Variable and fixed costs.
- The profit margin or difference in variable costs for an individual customer between the average check.
Now for the formula itself to calculate the break-even point. For natural expression:
Fixed costs / Marginal revenue = Break-even point.
For monetary terms:
(Revenue * Fixed costs) / (Revenue – Variable costs) = Break-even point.
The most common break-even formula:
HR / (P – CVA) = Break-even point.
FC (fixed cost) is a fixed cost.
P (price) is revenue.
AVC (average variable) is the variable cost per unit or volume.
Break-even point: calculation example
For clarity, here is an example of how you can use the formula and apply it to your business.
Let's say we have a Christmas toy factory. They retail for US $ 5-25 depending on the size of the toy. First, we need to calculate the average cost of this unit of goods. How will it be: (5 + 25) / 2 = 15 $… So you found the value of p (recipe).
Advance, looking for the FC value (fixed costs). Let's say renting a venue costs $ 500, staff $ 300, utility bills $ 100, and advertising for New Year's decorations is $ 200. We add and get: $ 1,100.
After that, find stroke (variable costs). To produce a toy, you need to pay for materials and an employee. Let it be 5 $ ($ 3 for materials and the rest of the money for the employee).
Apply the formula FC / (P - AVC) = Break-even point. And we have the following:
1,100 / (15 – 5) = 110 (toys per month).
An example of calculating the break-even point showed that for a New Year's toy factory, the ideal is to sell 110 toys per monthto go to zero.
Each subsequent toy sold after the optimal volume will bring profit to the factory. In the same way, you can find the monetary and natural indicator of the break-even point.
Calculating a break-even point online: is it possible?
Of course, you can use online services for the calculation. This will be convenient for those who want to quickly find out their indicator. You can use the following features:
- allcalc.ru;
- bbf.ru;
- complex WORLD.
Calculating a breakeven point online is as easy as using a formula in a spreadsheet. As mentioned above, the break-even point shows the volume of sales and production, profit and loss. Hurry up to analyze your business in terms of sustainability, but for now let's move on and see what the break-even graph in Excel looks like.
How to calculate a break-even point in Excel: plotting a graph
Excel is an excellent program to plot the break-even point in our case. The graphical method, like all others, is used depending on personal convenience of analyzing indicators. The graph shows where production is currently located in a more visual way. Let's find out which indicators allow you to build it. Excel is an excellent program to plot the break-even point in our case.
In front of us will be the following expression: Y = FC + VC (X).
You need to know the fixed costs, the cost of a unit of production and its selling price. first turn will display all production costs and accordingly will depend on their volume: Y = FC + VC (Х).
ONE second curve in turn, shows the profit from product sales, which depends on the company's production volume: Y = PX.
Today you studied different formulas for calculating a break-even point, learned several online calculators that will help you find this indicator, and considered plotting a break-even point in Excel. In conclusion, we want to say that the introduction of a financial statement and an analysis of the effectiveness of budget allocation are one of the main components of the company's positive development process.
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