Determination of Break-even Point: Suppose the fixed cost of a factory in Rs. It means if the company makes the sales of 5, units, it would make neither loss nor profit.
Overview[ edit ] The break-even point BEP or break-even level represents the sales amount—in either unit quantity or revenue sales terms—that is required to cover total costs, consisting of both fixed and variable costs to the company. Total profit at the break-even point is zero.
It is only possible for a firm to pass the break-even point if the dollar value of sales is higher than the variable cost per unit. This means that the selling price of the good must be higher than what the company paid for the good or its components for them to cover the initial price they paid variable costs.
Once they surpass the break-even price, the company can start making a profit. The break-even point is one of the most commonly used concepts of financial analysis, and is not only limited to economic use, but can also be used by entrepreneurs, accountants, financial planners, managers and even marketers.
Break-even points can be useful to all avenues of a business, as it allows employees to identify required Break even output and work towards meeting these.
The break-even value is not a generic value and will vary dependent on the individual business. Some businesses may have a higher or lower break-even point.
However, it is important that each business develop a break-even point calculation, as this will enable them to see the number of units they need to sell to cover their variable costs.
Each sale will also make a contribution to the payment of fixed costs as well. For example, a business that sells tables needs to make annual sales of tables to break-even.
At present the company is selling fewer than tables and is therefore operating at a loss. As a business, they must consider increasing the number of tables they sell annually in order to make enough money to pay fixed and variable costs. If the business does not think that they can sell the required number of units, they could consider the following options: Reduce the fixed costs.
This could be done through a number or negotiations, such as reductions in rent payments, or through better management of bills or other costs. Reduce the variable costs, which could be done by finding a new supplier that sells tables for less.
Either option can reduce the break-even point so the business need not sell as many tables as before, and could still pay fixed costs.
Purpose[ edit ] The main purpose of break-even analysis is to determine the minimum output that must be exceeded for a business to profit. It also is a rough indicator of the earnings impact of a marketing activity.
A firm can analyze ideal output levels to be knowledgeable on the amount of sales and revenue that would meet and surpass the break-even point.
If a business doesn't meet this level, it often becomes difficult to continue operation. The break-even point is one of the simplest, yet least-used analytical tools.
Identifying a break-even point helps provide a dynamic view of the relationships between sales, costs, and profits.
For example, expressing break-even sales as a percentage of actual sales can help managers understand when to expect to break even by linking the percent to when in the week or month this percent of sales might occur. The break-even point is a special case of Target Income Saleswhere Target Income is 0 breaking even.
This is very important for financial analysis. Any sales made past the breakeven point can be considered profit after all initial costs have been paid Break-even analysis can also provide data that can be useful to the marketing department of a business as well, as it provides financial goals that the business can pass on to marketers so they can try to increase sales.
Break-even analysis can also help businesses see where they could re-structure or cut costs for optimum results. This may help the business become more effective and achieve higher returns.
In many cases, if an entrepreneurial venture is seeking to get off of the ground and enter into a market it is advised that they formulate a break-even analysis to suggest to potential financial backers that the business has the potential to be viable and at what points.The basic idea behind break-even point is to calculate the point at which revenues begin to exceed costs..
The first step is to separate a company's costs in to those that are variable and those that are fixed. Defense Break Gáe Dearg (TYPE-MOON) is a spear that renders magical enhancements and projections useless by severing all ties with magical energy, such as Saber's armor.
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