The break-even point is determined by analyzing the ratio of indicators, how to calculate sales volume. What is the break-even point and its calculation? The break-even point is calculated as the ratio

One of the basic terms that any aspiring entrepreneur needs to know is what the break-even point is. Calculating it is extremely important even at the stage of business planning, since without it it is impossible to have a full view of the future business and an understanding of the required volumes of production or provision of services. Let's look at how the break-even point is calculated, why it is needed and where it is used.

Table of contents:

The concept of break-even point - why you need to determine it

In general, as an economic concept, the break-even point is a situation in which a business's profit is zero and total revenues equal total expenses. The traditional way to calculate the break-even point is to construct a graph, the horizontal axis of which represents the volume of products or services provided, and the vertical axis represents cash.

On this graph of the break-even point in the traditional format, you should draw a line of fixed costs, which is parallel to the horizontal axis, an ascending line of total expenses and an ascending line of revenue from sales of products and services. The point of intersection of the line of total expenses with the line demonstrating the income of the enterprise will be the break-even point. Accordingly, with an increase in sales volumes in comparison with the break-even point position, the company will make a profit, and if they decrease, it will suffer losses.

Important fact

In English economic theory, the break-even point is called BEP (break-even point), total expenses - TC (total cost), total revenue - TR (total revenue). In subsequent formulas and calculations, traditional English terminology will be used.

Not every modern entrepreneur is aware of the need to know the break-even point of a business. Many Russian businessmen do not have an economic education and do not even take into account such basic details that are important when opening and running their own business. Perhaps this is why the percentage of failed enterprises and closing organizations in Russia exceeds the world average.

At the same time, knowledge of the basic terms and principles of economic theory will not require any additional skills or abilities, since you can easily calculate the break-even point and build a graph in a few minutes. In general, the answer to the question “why do you need a break-even point” could be as follows:

To determine the feasibility of a particular project as a whole. For example, in some cases, the break-even point may ultimately be completely unattainable given the existing production capabilities or volumes of services provided.
BEP as an indicator can be used if it is regularly revalued to identify problems associated with the economic activities of the enterprise as a whole.
Drawing up a break-even chart will allow you to visually evaluate and calculate changes in profit and the possible price of a product when sales volumes change, and vice versa - to understand how a decrease or increase in sales volumes can affect the business.
Determining possible critical modes at the enterprise and using the break-even point as one of the markers or indicators of a crisis situation.

note

Almost always, the break-even point is a general, simplified indicator and does not always correspond to reality upon closer examination. However, this indicator makes it possible to evaluate the business, its condition and prospects as a whole, providing the basis for a subsequent deeper assessment, if there is a need for it.

How to calculate the break-even point - formulas, calculation procedure

Before starting to calculate the break-even point, it is necessary to determine all the factors and indicators that will be used in such calculations. Thus, at least the following indicators will be used in the calculations:

FC (fixed cost) – fixed costs not related to production volumes. These include rental payments, some types of taxes and fees, utility bills (partially), employee salaries (also not in all situations), and so on.
AVC (average variable cost) – variable costs. Such costs include the direct costs of producing one unit of product or providing one specific service. These may include, in part, the remuneration of employees, the cost of raw materials and related costs, taxes and other similar expenses.
P (price) – the price of the final product in the form of a good or service that will be paid by the consumer.

In physical terms, the calculation of the break-even point is as follows:

BEP = F.C. ( P - AVC )

The break-even point in such a calculation formula will demonstrate the required minimum quantity of products that the company needs to produce in order to reach the profit margin. Another method and way of calculating the break-even point is to determine it in monetary terms. In such a situation, the break-even formula will look like this:

BEP = F.C. /( C / P )

In this case, the indicator C means the profit from the sale of one unit of product from which the total costs of its production are subtracted. The fixed costs in the formula are ultimately divided by the contribution margin ratio, which allows us to determine the break-even point as the total amount of revenue required to avoid losses when there is no profit.

Advantages and disadvantages of the break-even point as an economic tool

The break-even point is a very convenient and, most importantly, simple economic tool that allows anyone to analyze a business, including those who do not have any economic education.

At the same time, this tool allows you to draw up models of future business that are close to reality, and adjust sales plans and costs of the enterprise. However, it also has a number of disadvantages. In particular, these include:

Failure to take into account the real dependence of fixed costs on changes in production volumes;
Ignoring changes in the cost of an individual unit of production depending on the volume of its production;
Lack of flexibility and consideration of possible changes in product costs within one schedule.

Of course, these shortcomings can be partially offset by the development and construction of more complex graphical interpretations of the break-even point. However, the need to carry out complex additional calculations ultimately makes such a method inaccessible to most ordinary entrepreneurs without an economic education. Therefore, the break-even point in activities and in its analysis should be used only as one of the tools for control and verification, and not rely entirely on the application of such knowledge and its absolute correspondence to reality.

What is the break-even point - the theoretical aspect + data is needed to calculate it + 3 popular ways to calculate it.

It is quite difficult to plan and carry out entrepreneurial activities without knowledge of the basics of economics.

Any businessman, no matter what it is or an LLC, will be faced with concepts such as income, expenses and profit.

And this is generally a hundredth part of what he must understand to successfully run his business.

For this reason, today we will talk about what is break-even point, and why is it needed?

What is the break-even point: a little theory

Break-even point (BPU)- this is one of the key concepts in microeconomics, which shows how much goods need to be sold (and not just produced) in order to equalize income with expenses, namely, not to make a profit and not to incur losses.

Thus, it is a critical indicator that forecasts sales volumes to cover gross production costs.

As soon as an enterprise crosses the profitability threshold (this is another name for the break-even point), it begins to make a profit, and, conversely, if it does not reach it, it becomes unprofitable.

The value of this indicator reacts to changes in the prices of raw materials (variable costs), the wage fund for administrative personnel (fixed costs) and many other circumstances, which we will examine throughout the article.

The importance of calculating the break-even point is due to the fact that it can be used to:

determine the optimal cost of selling manufactured products;
calculate the time frame for a new project to pay off (the moment when revenues exceed costs);
monitor changes in the indicator in order to identify problem areas in the production and sales process;
analyze the financial condition of the enterprise;
find out how changes in prices or expenses will affect the resulting revenue.

Break-even point - practical aspect

The next step in analyzing the question of what the break-even point is is its calculation.

But before that, we suggest you familiarize yourself with when it would be advisable to do this:

the amount of variable costs and value remain unchanged over a specific period of time;
it is possible to accurately determine not only fixed costs, but also variable costs per unit of production;
variable costs and volume of production have a linear relationship;
the operating conditions of the enterprise are stable;
there are practically no leftovers of finished products (i.e., what is produced is equal to what is sold).

Necessary data to calculate the break-even point

To calculate the break-even point you will need to know these indicators:

Indicator designation	Its meaning
CVP / BEP (cost-volume-profit / break-even point)	Break even
TFC (total fixed cost)	Fixed expenses
TVC (total variable cost)	Variable expenses
AVC (average variable cost)	Variable costs per unit of production
TR (total revnue)	Revenue (income)
P (price)	Selling price
Q	Production volume in physical terms
MR (marginal revenue)	Marginal income

Let's take a closer look at these indicators:

Fixed expenses- these are those that do not depend on the volume of production, i.e. the enterprise bears them in any case.

These include:

salaries (including contributions to social funds) of management personnel;
rental of premises;
depreciation of equipment.

Variable expenses- these are those that depend on the quantity of products produced.
These include:
- purchase of raw materials;
- wages (plus contributions to social funds) of working personnel;
- communal payments;
- fuel and transportation costs.
Marginal income can be calculated as the difference between revenue (TR) and total variable costs (TVC) or between price (P) and unit variable costs (AVC).

Method 1. Using the formula.

Break even can be calculated in physical and monetary terms.

In the first case, we will find out how many units of goods need to be sold in order to break even, and in the second, how much revenue received will recoup the costs incurred.

Calculation of TBU in natural equivalent:

BEPnat = TFC / (P-AVC)

BEPden = BEP nat * P

For clarity, let's look at a specific example:
Variable costs for the production of one product (AVC): 100 rubles;
Selling price (P): 180 rubles.
Substitute the original values into the formula:
BEP nat = 40,000 / (180-100) = 500 pieces.
Having the obtained result, you can calculate at what gross income the enterprise will go to zero:
BEPden = 500 * 180 = 90,000 rubles.

Calculation of TBU in monetary terms:

BEPden = (TR* TFC) / (TR-TVC)

You can also calculate the break-even point through marginal income.

KMR for 1 unit = MR per 1 unit. /P

Based on the obtained values, we obtain:

BEPden = TFC / KMR

Again, to clarify the above formulas, consider them using an example:
We have the following data:
Fixed expenses of the enterprise (TFC): 40,000 rubles;
Variable costs (TVC): 72,000 rubles;
Revenue (TR): 120,000 rubles.
Substitute the values into the formula:
BEPden = (120,000*40,000) / (120,000-72,000) = 100,000 rubles
MR = 120,000-72,000 = 48,000 rubles
KMR = 48,000 / 120,000 = 0.4
BEPden = 40,000 / 0.4 = 100,000 rubles

Thus, it can be seen that the BEP values calculated using the two formulas are equal.
If an enterprise sells its goods for 100,000 rubles, then it will not suffer losses.
As for the marginal income coefficient, it shows that every ruble of revenue received from above will bring 40 kopecks of profit in this case.

As for calculating BEP for several products, the situation here is as follows:

First, the marginal revenue for each individual product is calculated.
Then the share of marginal income in revenue and its coefficient are determined.
BEPden = TFC / (1- K TVC) ,
where K TVC is the coefficient of variable costs in revenue (TVC / TR).

To make it clearer what’s what, we suggest that you familiarize yourself with the table:

Product	Revenue from the sale of goods, thousand rubles.	Total variable expenses, thousand rubles.	Fixed expenses, thousand rubles.
Total	870	380	390
1	350	150	390
2	290	130
3	230	100

Product	Marginal income, thousand rubles.	Marginal income share	Variable expense ratio
Total	490	0,56	0,44
1	200	0,57	0,43
2	160	0,55	0,45
3	130	0,57	0,43

Method 2: Using Excel.

Not using modern technologies in economic calculations is stupid. Large enterprises that work with large quantities of several goods cannot do without them.

So, to make calculations in a popular spreadsheet, you need to enter basic data:

Then a table is built, which will be gradually filled with the calculated data. And based on its results, it will be possible to see at what volume of goods sold the company will pass the loss line:

Using this principle, we fill out the table, based on the fact that the company produces and sells several units of goods:

So, in our case, it turns out that when selling 4 units of goods, the company receives zero profit. The proceeds will be 480 rubles.

And having already sold the fifth piece, a profit equal to 50 rubles is made.

As you can see, it is enough to build such a simple spreadsheet into which you need to enter the initial data, and the calculation of the break-even point will always be at hand.

The advantages of using Excel to calculate the break-even point:

you can make any changes related to price or costs - the table will instantly recalculate the results;

When making a forecast, you can adjust the values of the initial indicators to find the optimal sales volume.

For example, you want to achieve profit on the third unit of goods. To do this, you can immediately raise its price and see what changes.

Thus, having set the price at 150 rubles, the table was immediately recalculated and produced new data, which showed the current value of the break-even point.

Method 3. Drawing a graph.

To build a graph, we need all the indicators that we calculated in the table.

For the resulting linear diagram to be correct, it is necessary to highlight the following data:

sales volume - X axis;
gross (fixed, variable) costs, revenue, net profit - Y axis.

At the intersection of income and gross expenses (variables + constants) there will be a break-even point.

Moving the perpendicular down we will find its natural value, and to the left we will find the monetary equivalent.

Moreover, the chart clearly demonstrates the area of losses and profits.

Let's return to our example.
Having a table, you can easily build a graph that will show the desired indicator. Again, as you make changes, the chart will react, showing the new results.

The only drawback of this method is that the graph will not indicate the exact number of goods. Of course, you can increase the scale to understand what value the intersection point tends to, but still it is calculations that will give a specific indicator.

Calculating the break-even point is extremely important at the stage.

Once again about how to do this, but from first-hand experience:

Conclusions about the break-even point

Based on the information described above, we can say that the break-even point is:

this is a great way to figure out how much you need to sell so as not to go into the red;
it is quite simple (if you know the exact initial indicators);
does not always correspond to the actual operating conditions of the enterprise, because its calculation assumes a “utopia” in running a business (one that is not affected by anything).

But despite the fact that this indicator works well under ideal conditions, every entrepreneur should be able to use it in analyzing the financial condition of their business.

Useful article? Don't miss new ones!
Enter your email and receive new articles by email

The reason a business is started is to make a profit. It is extremely important to know “onshore” how much you will need to invest in it at the start, and when these costs will begin to pay off.

Between these two “points” - the opening of an enterprise and the beginning of its receipt of income - there is an “intermediate station”, the so-called break-even point. That is, the state of the company’s activity when investments have already been justified, but income has not yet appeared; the company is said to have broken even.

Let's find out what factors influence the speed of reaching this point, and how to calculate it yourself.

The break-even point of an enterprise is an important success factor

The break-even point is calculated mathematically, using certain formulas. First, let’s take a closer look at this concept itself and understand how important this indicator is.

In the formulas, the break-even point will be denoted by the Latin abbreviation BEP, this is an abbreviation for break-evenpoint (profitability limit) - the volume of sales or performance of work or services at which profit is reset to zero. Profit in these calculations is the difference from subtracting expenses (TC - total cost) from income (TR - total revenue). BEP can be measured in physical or monetary terms.

Until the break-even point is reached by the enterprise, it is in the red and incurs losses. When it is passed, profit making begins. Therefore, this indicator is extremely important for understanding how stable and successful a company is. During different periods of the company's activity, the value of BEP changes, and these changes allow us to talk about the dynamics of its development.

More specifically, knowing the BEP value allows you to:

at the initial stage, find out whether it is worth joining the project at all, investing in it, taking into account the data on its payback;
when sales volume changes, calculate the value of product price adjustments or make reverse calculations in case of price changes;
if actual revenue turns out to be higher than originally expected, determine whether it can be lowered without ending up at a loss;
identify problems in the company and correct them in a timely manner.

What indicators are taken into account in the break-even point formula

How to determine the break-even point? To do this, you need to know the components of the calculations, first of all, the specific costs of the enterprise. They are divided into constants and variables, and it is important to be able to distinguish one from the other.

Fixed costs include rent for premises, depreciation, as well as salaries of management and other managers (both basic and additional), taking into account deductions.

Variable costs are fuel and energy for technological needs, materials (main and auxiliary), components, and semi-finished products. This also includes workers’ wages, also basic and additional (with deductions).

Fixed costs are called that way because they are slightly susceptible to fluctuations and changes. It is generally accepted that they practically do not depend on the volume of production and sales. Changes in fixed costs can occur under the influence of such factors as growth or decline in enterprise capacity, changes in the level of labor productivity, expansion due to the opening of new workshops or a reverse phenomenon, inflation, rent adjustments, etc.

But variable costs are precisely tied to production volumes, and accordingly, they change with them. The dependence is directly proportional: with an increase in production and sales volume, the amount of variable costs also increases.

But please note: we are talking specifically about the total amount of this indicator. At the same time, variable costs per unit of production do not change significantly with increasing production volumes. Experts say that variable costs per unit of production are conditionally constant.

Calculation formulas in monetary and physical terms

The break-even point formula exists in two main versions: in physical and monetary terms.

To calculate BEP in physical terms, the following indicators are needed:

FC - fixed cost, that is, the sum of fixed costs per volume;
AVC - average variable cost, the value of variable costs per unit of production;
P - price, unit price of a product or service, work.

To calculate the break-even point, that is, the critical sales volume, in physical terms, use this formula:

BEP = FC/( P-AVC )

Similar calculations of BEP in monetary terms are made using the following indicators:

FC — fixed cost, the amount of fixed costs;
VC - variable cost, the sum of variable costs per volume or AVC - average variable cost, the value of variable costs per unit of production;
P - price, price or TR - total revenue, income (revenue).

The formula for the break-even point in monetary terms also requires the calculation of the marginal income coefficient, that is, its share in revenue. First you need to find the value of marginal revenue itself (MR - marginal revenue), and this is the amount of revenue minus variable costs.

MR = TR - VC

But there is one nuance: revenue per unit of production is precisely the price of the product, it can be expressed by the formula: P = TR/Q, where TR, as we already know, is the amount of revenue, and Q is the sales volume. It turns out that marginal income is the difference between price and variable costs, only per unit of production: MR = P - AVC

Then we calculate the marginal income coefficient as follows:

Kmr = MR/TR

Or, if we calculate MR based on price:

The break-even point is also calculated in monetary terms: BEP = FC/ Kmr

As a result of the calculation, you will get a critical amount of revenue, that is, its level at which the profit is zero.

Break-even point for a store: calculation example

How to calculate the break-even point for certain types of enterprises and organizations? The easiest way to understand the system is through specific examples, especially since different types of activities have specifics. Let's start with a common type of business - a clothing store. Here, as in most cases, it is preferable to use the form of payment in monetary terms.

We will need figures for fixed costs that characterize the functioning of the store. These are the costs for:

rent - 100,000 rubles;
utilities - 15,000;
advertising - 35,000;
wages of sales consultants, cashiers - 123,080;
deductions from salary (insurance contributions - 30% of total earnings) - 36,920.

Variable costs in our case are sales volume, let it be 600 units of goods, and the average purchase price, we took it to be 1000 rubles.

Summing up the fixed costs, we get 300,000 rubles. Variable costs are the product of price and quantity sold, that is, 600,000.

Marginal income: MR = 2,400,000 - 600,000 = 1,800,000 rubles.

We calculate the marginal income ratio:

Kmr = 1,800,000/2,400,000 = 0.75

We determine the break-even point: BEP = 300,000/0.75 = 400,000 rubles.

That is, in a new store you need to sell clothes worth 400,000 rubles, only then will you make zero profit. Everything that is sold for an amount over 400,000 rubles will go to profit. The store's financial strength is estimated at 1,800,000 rubles. This indicator tells you how much revenue can be reduced so as not to fall into the unprofitable zone.

We make calculations for the enterprise

The break-even point of an enterprise is calculated differently; here the formula in physical terms is most often used.

Fixed costs in our example:

depreciation charges - 100,000 rubles;
general plant expenses - 80,000;
AUP salary - 100,000;
utility costs - 20,000.

The total amount is 300,000 rubles of fixed expenses.

Variable costs:

wages of main workers - 60 rubles. — per one unit of production;
deductions from wages (insurance contributions - 30% of the total wages) - 20 rubles. per unit of production;
materials costs (for the entire production volume) - 150 rubles.
costs for semi-finished products (for the entire volume) - 90 rubles.

Total 320 rubles with a product price of 400 rubles.

Break-even point: BEP = 300000/(400 - 320) = 3750 pcs.

This means that this enterprise will have to produce 3,750 units of product in order to break even. Profit will be made when this volume is exceeded.

About nuances and assumptions

We have already learned how to calculate the break-even point. The main thing is to have a set of initial data and use them in the formula. The problem is one thing: business is a moving business, everything flows and changes quite quickly, and you have to react to the “movements” of the market. Otherwise, you won’t be able to keep up with your competitors. In the calculations, we have to make some assumptions, since it is impossible to monitor online, constantly making adjustments to the source code.

Here are the main assumptions:

the company conditionally leaves the old price in the calculations, increasing sales volumes, although in reality this is unrealistic, especially if we are talking about a long period of the billing period;
a similar situation with costs: they are unchanged in the formula, but in reality, most often, they change with an increase in sales volume, and even at full capacity - here the economic law of increasing costs comes into force;
in calculating TB, we consider the product to be fully sold, although in reality it rarely happens so smoothly;
We calculate the TB value for one type of product, and when there are several of them, we conditionally assume that the structure of types of goods is constant.

The most obvious way to visualize the break-even point is using a graph. To do this, we draw a revenue line, then a line of variable costs (sloping) and fixed costs (straight line). We get the value of production volume (sales) on the horizontal axis, and on the vertical axis we see the result of costs and income in monetary terms. Example in the picture:

Having calculated the sum of variable and fixed costs, we will derive a line of gross costs. Where will the desired break-even point be on the chart? At the intersection of the revenue and gross cost lines. in the example given, this point represents 40% of sales volume.

At the break-even point, revenue is called threshold (critical), and the same term is used to describe sales volume.

Hello! Today we’ll talk about the break-even point and how to calculate it.

Any person who decides first of all thinks about making a profit. When running a business, there are production costs - these are all the costs of manufacturing and marketing products. They are subtracted from the total sales revenue in monetary terms, obtaining a positive (profit) or negative (loss) result. For the successful functioning of an enterprise, it is necessary to know the boundary of the transition of revenue into profit. This is the break-even point.

What is the break-even point

The volume of production at which all income received can only cover total costs - this is the break-even point(from English break-even point - point of critical volume).

That is, this is the minimum amount of revenue in monetary terms or the volume of products produced and sold in quantitative terms, which only compensates for all production costs.

Reaching this point means that the company is not operating at a loss, but is not yet making a profit. The result of the activity is zero. With each subsequent unit of goods sold, the company makes a profit. Other names for this term: profitability threshold, critical production volume.

Why do you need to know the break-even point?

The value of this indicator is important for assessing the current financial condition of the enterprise, as well as for economic planning for the future. The break-even point allows you to:

Determine the feasibility of expanding production, dealer network, mastering new technologies and types of products;
Assess solvency and financial stability, which is important for company owners, investors and creditors;
Monitor changes in indicators over time and identify bottlenecks in the production process;
Calculate and plan a sales plan;
Determine the acceptable amount of revenue reduction or the number of units sold so as not to go to a loss;
Calculate the impact of changes in price, production costs and sales volume on the financial result.

What data is needed to calculate the break-even point

To correctly calculate the indicator, you need to understand the difference between fixed and variable costs.

And also know the following information:

Price of 1 unit of products or services (P);
The volume of products produced and sold (in the classical calculation model) in physical terms (Q);
Revenue from products sold (B). To calculate the threshold in physical terms, this indicator is not necessary;
Fixed costs (Fc.) are production costs that do not depend on the volume of production. They do not change for a long time.

These include:

Salaries and insurance premiums of engineering and technical workers and management personnel;
Rent for buildings, structures;
Tax deductions;
Depreciation deductions;
Payments on loans, leases and other obligations.

5. Variable costs(Zper) are production costs that increase or decrease depending on the increase or decrease in the production of goods or the volume of services provided. The value of the indicator can vary widely, instantly reacting to any changes in the company’s activities.

These costs include:

Cost of raw materials, components, spare parts, semi-finished products;
Salaries and insurance contributions of key production workers and personnel working on piecework;
Electricity, fuels and lubricants (fuels and lubricants), fuel;
Fare.

The division of all costs into fixed and variable is conditional and is used in the classical model for calculating the break-even point. The specifics of a number of economic entities imply a more precise allocation of costs into separate types according to economic meaning.

In particular, production costs may additionally be:

Conditionally permanent. For example, warehouse rent is a fixed component, while the costs of storing and moving inventory are a variable component;
Conditional variables. For example, the payment for depreciation (wear and tear) of capital equipment is a constant value, and the cost of planned and routine repairs is a variable value.

Cost accounting systems at different enterprises differ (for example, standard costing, direct costing, variable costing, etc.). There is a division of variable costs into individual ones for each product, a division of fixed costs into fixed and individual ones for each product, etc.

This article will examine in detail the classic model for calculating the break-even point for one product, and also provide an example of calculation with several types of goods.

Formula for calculating the indicator

Using the mathematical method, the break-even point (abbr. BEP) is calculated both in monetary and in kind terms. It all depends on the characteristics of a particular enterprise. When calculating according to the classical model involving one product (or several - then average data are taken), assumptions are taken into account for a number of factors:

Fixed costs within a given production volume remain unchanged (this level is called relevant). This also applies to variable costs and prices;
Product output and the cost of finished products increase or decrease linearly (directly proportional);
Production capacity is constant over a given calculation interval;
The product range does not change;
The effect of inventory size is insignificant. That is, the amount of work in progress has minor fluctuations and all produced products are released to the buyer.

This economic indicator should not be confused with the payback period of the project. It shows the time (months, years) after which the company will begin to receive profit from its investments.

Break-even point in monetary terms

The calculation formula will show the minimum amount of revenue that will cover all costs. The profit will be zero.

Calculated as follows:

In the denominator, the difference between revenue and variable costs is the contribution margin (MR). It can also be calculated for 1 unit of production, knowing that revenue is equal to the product of price and volume:

B = P*Q,

MD for 1 unit. = P — Zper. for 1 unit

To determine the break-even point using another formula, find the marginal income coefficient (Kmd):

The final value in both formulas will be the same.

Break-even point in physical terms

The calculation formula will show the minimum sales volume to cover all production costs with zero profit. Calculated as follows:

Each subsequent unit of goods sold above this critical volume will bring profit to the enterprise.

With a known value of VERNAT. VERDEN can be calculated:

VERDEN. = VERNAT. *P

How to calculate break-even point in Excel

It is very convenient to calculate the break-even point in Microsoft Office Excel. It is easy to set the required formulas between all the data and build a table.

Table compilation procedure

First, you need to create cost and price indicators. Let's assume that fixed costs are 180 rubles, variable costs are 60 rubles, and the price for 1 unit of goods is 100 rubles.

The value in the columns will be as follows:

We fill out the production volume ourselves, in our case we will take the interval from 0 to 20 pieces;
Fixed costs =$D$3;
Variable costs =A9*$D$4;
Gross (total) costs = B9 + C9;
Revenue (income) =A9*$D$5;
Marginal income = E9-C9;
Net profit (loss) = E9-C9-B9.

These formulas in cells must be carried out throughout the entire column. After filling in the values for production volume, the table will take the following form:

Starting from the 5th unit of production, net profit became positive. Before this, revenue did not cover the total (total) production costs. The profit in this case is equal to 20 rubles, that is, formally this is not quite the correct break-even point. The exact value of volume at zero profit can be calculated:

That is, the break-even point is mathematically calculated at a production volume of 4.5 units. However, the economist takes into account 5 pieces. and the revenue value is 480 rubles. is considered the break-even point, since it produces and sells 4.5 pcs. product is not possible.

Let's add 2 more columns to the table with the calculation of the safety margin (margin of safety, margin of safety) in monetary terms and in percentages (KB den. and KB%). This indicator indicates the possible amount of reduction in revenue or production volume to the break-even point. That is, how far the enterprise is from the critical volume.

Calculated using the formulas:

Vactual (plan) – actual or planned revenue;
VTB – revenue at the break-even point.

In this example, the actual revenue value is taken. When planning sales volume and profit, they use the value of planned revenue to calculate the required safety margin. In the table, these columns will be calculated as follows:

Safety edge in rub. = E9-$E$14;
Safety edge in % = H10/E10*100 (calculation is carried out starting from a production volume of 1 piece, since division by zero is prohibited).

A safety margin value above 30% is considered a safe limit. In our example, production and sale of 8 pcs. goods and more means a stable financial position of the company.

The final table will look like:

Algorithm for constructing a graph

For clarity, let's build a graph. Select Insert/Scatter Plot. The data range includes gross (total) costs, revenue, and net profit. On the horizontal axis there will be production volume in pcs. (it is selected from the values of the first column), and along the vertical – the sum of costs and revenue. The result will be three slanted lines.

The intersection of revenue and gross costs is the break-even point. It corresponds to a net profit value of 0 (in our example, 20 rubles for a product quantity of 5 pieces) horizontally and the minimum required revenue value to cover total costs vertically.

You can also build a more detailed graph, which includes, in addition to the above indicators, fixed, variable costs and marginal income. To do this, the specified rows are sequentially added to the data range.

How to use a ready-made table in Excel

To calculate the break-even point, you just need to substitute your initial data, and also enter the production volume values in the first column. If there are a lot of them, then to speed up the work you can write in cell A10, for example: =A9+1 and move this formula down. Thus, the interval between volume values will be 1 piece. (you can enter any number).

Download a ready-made excel file to calculate the break-even point

Example of calculating the break-even point

For example, let’s take an entrepreneur selling watermelons in summer stalls. He has one product, the price is the same in different parts of the city. Watermelons are purchased in bulk in the southern regions and delivered for sale to central Russia. The business is seasonal, but stable. The initial data is as follows:

It is necessary to determine the minimum acceptable volume of watermelon sales and the threshold revenue value to cover all costs.

The procedure for calculating using the mathematical method

The price of 1 watermelon is taken as average, since they all have different weights. These fluctuations can be neglected. To calculate the break-even point in physical terms, we use the well-known formula:

To calculate the break-even point in monetary terms, you need to know the number of watermelons sold per month and the amount of variable costs for this volume:

Q per month = 36000/250 = 144 watermelons,
Zper. for monthly volume = 130*144 = 18,720 rub.

The first two values give a break-even point with zero profit, but the volume of watermelons sold will be 91.67 pieces, which is not entirely correct. The third value is calculated based on the critical sales volume of 92 watermelons per month.

Current monthly revenue and sales volume are above the break-even point, therefore the entrepreneur is working with a profit.

Additionally, we determine the size of the safety edge:

A level above 30% is considered acceptable, which means the business is planned correctly.

Calculation procedure by graphical method

The break-even point can also be calculated graphically, without preliminary calculations. To do this, the volume of output in pieces is plotted along the horizontal abscissa axis, and the amount of revenue and total costs (sloping lines) and fixed costs (straight line) is plotted along the vertical ordinate axis. Next, they draw by hand or build a diagram on a computer based on the original data.

As a result of constructing the graph, the break-even point will be at the intersection of the revenue and total cost lines. This corresponds to a sales volume of 91.67 watermelons and revenue of 22,916.67 rubles. The shaded areas show profit and loss areas.

The given calculation model for one product is easy to analyze and calculate the break-even point. Well suited for companies with a stable sales market without sharp price fluctuations.

However, the above calculation has the following disadvantages:

Seasonality and possible fluctuations in demand are not taken into account;
The market may grow due to the emergence of progressive technologies, new marketing moves;
Feedstock prices may change;
For regular and “large” buyers, discounts are possible.

Thus, the data for calculating the break-even point are considered in conjunction with many factors and other economic indicators.

Break-even planning for the enterprise

Based on the obtained values of the break-even point, an analysis of the current market conditions is carried out and the most significant factors influencing it are identified. Planning further work involves forecasting production costs and competitive market prices. This data is used to calculate the production and break-even plan, which is part of the company's overall financial plan. For the successful operation of the enterprise, compliance with the approved goals is monitored.

Consecutive stages of break-even planning:

Analysis of the current state of affairs in the company and sales . Strengths and weaknesses are identified and determined taking into account internal and external factors. The work of supply and sales services, the level of management at the enterprise, and the rationality of the production process are assessed. Among external factors, the market share controlled by the company, the activities of competitors, changes in consumer demand, the political and economic situation in the country, etc. are taken into account;
Forecast of future prices for manufactured products, taking into account the assessment of all factors from paragraph 1 . An acceptable markup range is planned. Alternative options for sales to new markets or restructuring the enterprise to produce similar products are explored in the event of an unfavorable situation in the current market;
Fixed, variable costs and production costs are calculated . The volume of work in progress at all stages of production is planned. The need for fixed and working capital and the sources of their acquisition are formed. Additional possible expenses for loans and other obligations are also taken into account in production costs;
The break-even point is calculated . The required size of the safety edge is determined. The more unstable external factors are, the greater the margin of safety should be. Next, the volumes of production and sales of goods at the safety edge level are calculated;
Planning the company's pricing policy . Prices for products are determined that will allow achieving the required sales volume. The break-even point and safety margin are recalculated once again. If necessary, paragraphs 3 and 4 are repeated in order to find reserves for reducing costs in order to achieve the required safety margin values;
Adoption of the final break-even and sales plan divided by periods . The data is approved at the critical volume point.
Break-even control , divided into several components: control of all expense items, total cost, sales plan, receipt of payments from customers, etc. The enterprise should always have an understanding of how the current financial situation corresponds to the planned break-even level.

Calculation example for a store

Using the example of a store selling several types of goods, let’s consider a solution to a multi-product problem. These are musical instruments and related products: electric guitar (A), bass guitar (B), sound amplifier (C), acoustic guitar (D). The store has fixed costs, as well as individual variable costs for each type of product. They are purchased from different suppliers and bring in their own amount of revenue.

The initial data is as follows:

Product	Revenue from the sale of goods, thousand rubles	Individual variable costs, thousand rubles	Fixed costs, thousand rubles
A	370	160	400
B	310	140
IN	240	115
G	70	40
Total	990	455	400

The store is quite large, but the structure of revenue by type of product does not change significantly. The range and prices for them are different, so it is more rational to calculate the profitability threshold in monetary terms. To solve this problem, we use formulas and methods from direct costing, which assume a range of break-even points for such a case:

Kz. lane – coefficient of the share of variable costs in revenue.

In the following table we calculate it for each type of product and the total for the entire store. We will also calculate marginal income (Revenue - individual variable costs) and its share in revenue:

Product	Marginal income, thousand rubles	Share of marginal income in revenue	Kz. lane (share of variable costs in revenue)
A	210	0,37	0,43
B	170	0,55	0,45
IN	125	0,52	0,48
G	30	0,43	0,57
Total	535	0,54	0,46

After calculating Kz. lane For the entire store, the average break-even point will be:

Now let's calculate this indicator using the most optimistic forecast. It is called marginal descending ordering. The table shows that the most profitable products are A and B.

Initially, the store will sell them and the total marginal income (210+170=380 thousand rubles) will almost cover the fixed costs (400 thousand rubles). The remaining 20 thousand rubles. will be received from the sale of product B. The break-even point is equal to the sum of revenue from all listed sales:

The most pessimistic sales forecast is the marginal ordering in ascending order. Initially, goods D, C and B will be sold. The marginal income from them (125+30+170=325 thousand rubles) will not be able to cover the store’s fixed costs (400 thousand rubles). The remaining amount is 75 thousand rubles. will be received from sales of product A. The break-even point will be equal to:

Thus, all three formulas gave different results. Essentially, optimistic and pessimistic forecasts provide an interval of probable break-even points for the store.

Additionally, we calculate the safety margin in monetary terms and as a percentage based on the average break-even point:

Although the store is operating at a profit, the safety margin is below 30%. Ways to improve financial performance are to reduce variable costs and increase sales for goods D and C. It is also necessary to check fixed costs in more detail. Perhaps there will be reserves for reducing them.

Example of calculation for an enterprise

As an example, let’s take an enterprise producing household solvents with a volume of 1 liter. The company is small, prices rarely change, so it is more rational to calculate the profitability threshold in physical terms (number of bottles).

The initial data is as follows:

The calculation will be as follows:

The resulting value is very close to the actual volume (3000 pcs.).

Additionally, we calculate the safety edge in pieces (using a formula similar in monetary terms) and as a percentage:

Thus, the company operates on the verge of break-even. Urgent measures are needed to improve the financial situation: a review of the structure of fixed costs, perhaps the salaries of management personnel are too high. It is worth understanding in detail the costs that form variable costs. The primary direction to reduce them is to find new suppliers of raw materials.

The main goal of any business is to make money. Therefore, before launching a new business, an entrepreneur must complete the correct break-even point calculation . This point shows at what point in time the business will cover all kinds of losses, finally starting to generate real profits. In essence, this is a common calculation of enterprise efficiency. Correctly finding this point will show businessmen and investors how profitable it is to engage in a project, what risks there are and when the investment will pay off. Based on this data, the final decision will be made.

What is the break-even point

The break-even point is the volume of services provided or sales at which the profit is zero. In English, this concept sounds like Break evenpoint, or simply BEP for short. From the economics course we know that profit is the difference between TotalRevenu (income) and TotalCost (expenses). BEP is usually measured in monetary or physical terms. By calculating this indicator, you can understand how many services or goods you need to sell to break even. If sales are lower, you will work at a loss; if sales are higher, you will make a profit.

TB is an important indicator for an enterprise. According to it, you can determine how efficiently the company operates, whether it is stable in the market and spends money. If the BEP indicator grows, then you should pay attention to cost optimization (in the absence of changes in the company structure). The break-even point may change with expansion or contraction, with price changes, the opening of new trade relations, etc. But be that as it may, BEP is one of the key business indicators - it is by it that the prospects of work and investment are determined.

Knowing TB, you can decide for yourself:

Does it make sense to invest in the enterprise and will it really be able to sell enough goods to break even?
Determine the efficiency of work after some time (ideally, TB should remain the same as it was).
Determine the cost of production. It may make sense to change the quantity of goods produced when production falls and vice versa.
Attract outside investors by showing them effective business plans based on market research and BEP indicators.

How to calculate

So, we understand the concept of TB. Now let's figure it out how to calculate break-even point . To do this, you need to analyze your enterprise. Determine which costs are fixed (rent, utilities, wages, taxes, equipment depreciation) and which are variable (raw materials, bonuses, expansion, unexpected purchases, components).

Note:fixed costs are virtually constant. You cannot refuse them in any way, although you can make a delay in payments (for example, agree to postpone the rent).

Fixed costs change only when something global happens: you open a new workshop, your rent is increased, tax or labor legislation changes, or a serious depreciation of money occurs (inflation).

Correct calculation of the break-even point will allow you to conduct a detailed analysis of the enterprise

Variable costs mainly depend directly on the volume of production and sales. They change with the market. For example, an order has been received that exceeds your normal production volume by 50% - you will have to purchase more raw materials, machines and people will work in 2 shifts, so you will have to pay more for utilities and pay bonuses.

Here it should be taken into account that variable costs remain in the same place when production volume changes, that is, they are considered conditionally constant, and break-even point shows , how quickly you will reach zero.

Calculation principle

The point can be found in two different ways:

In terms of value.
In kind.

Let's figure out how to correctly calculate TB using the second method, since it is more common. To do this, you need to define several indicators:

FC is the amount of fixed costs;
P is the cost of one unit of service or product;
AVC is the amount of variable costs.

Once the data is received, you can easily calculate the BEP using the formula BEP=FC/(P-AVC).

It might be useful to read: