Determining the break-even point. What is the break-even point and its calculation When calculating the break-even point it is assumed that

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.

1. 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.
2. 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:

1. First, the marginal revenue for each individual product is calculated.
2. Then the share of marginal income in revenue and its coefficient are determined.

3. 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.

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O.V. Grishchenko
Management Accounting
Lecture notes. Taganrog: TTI SFU, 2007.

6. USE OF ACCOUNTING INFORMATION IN THE PROCESS OF MAKING MANAGEMENT DECISIONS

6.2. One-component break-even analysis

Break-even analysis is a fairly simple in form and deep in content tool for planning and making management decisions in a commercial organization. The basis for making decisions regarding production activities is to consider options for possible changes in the market situation. Since the enterprise plan is a system of indicator values ​​that the enterprise intends to achieve in the future, its implementation will depend on many factors. In the process of drawing up plans, the management of the enterprise will have to solve the following tasks:

– determine the volume of production that will not only cover costs, but also allow you to obtain the desired level of profit;

– determine the level of costs that allows you to remain competitive in the market.

Break-even analysis allows you to solve these problems. There are other names for this procedure in the literature, for example: “critical sales volume method”, “dead point method”, “zero profit point method”, “operational analysis”, “margin method”, cost-volume-profit method ", or CVP analysis (Cost - Volume - Profit).

The essence of the method is to determine for each specific situation the volume of output that ensures break-even activity.

One-component break-even analysis.

The simplest is the break-even analysis of single-product production, i.e. production that produces only one type of product. In general, without taking into account tax effects, the operating profit of an enterprise (P) for the reporting period is formed as follows:

P = VR – Zpost – Zper;

where BP is the enterprise’s revenue for the period in monetary units, BP = q × Q;

ts – selling price per unit of production, rub.;

Q – sales volume in physical terms, pcs, kg, etc.;

Zpost – fixed costs, rub.;

Zper – total variable costs, rub.

If we denote specific variable costs in rubles. – zper, then the formula can be presented in the following form:

P = (c – zper) × Q – Zper.

Break even(Qcr)– this is an indicator characterizing the volume of product sales at which the enterprise’s revenue from the sale of products (works, services) allows it to cover all expenses and reach a zero profit level (P = 0). The break-even point can be found from the equation:

Another important value that characterizes the cost structure of an enterprise is the value marginal incomeor contribution enterprises. Marginal income at manufacturing enterprises is considered to be the difference between the enterprise's revenue from the sale of products (works, services) and the variable costs that the enterprise incurred in the process of producing these products (works, services). There are different amounts of total marginal income (MI):

MD= BP – Zper = c × Q – zper × Q = (c – zper) × Q

and specific marginal income ( md):

md= c – zper.

There is another way to determine the amount of marginal income. The amount of marginal income can be determined by adding the fixed costs and profit of the enterprise:

MD = Zpost. + P.

The dependence model of the indicators under consideration can be constructed graphically (Fig. 6.2).

Rice. 6.2. Break-even chart

A widely used and very clear representation of profit growth above the break-even point is shown in Fig. 7.3. In this graph, straight line 3 complete is the x-axis. The ordinate axis reflects the amount of “divergence” between straight lines "Revenue" And Zfull, i.e. the amount of profit. When the output is below Qcr, the value on the ordinate axis will be negative (which corresponds to losses), and above Qcr - positive (profit). The slope of this graph to the x-axis will be equal to specific marginal income, and its intersection with the ordinate axis is the value Zfast, which is understandable - with zero output, losses are equal to the amount of fixed costs.

Rice. 6.3. Dependence of profit on output volume

The volume of production Qкр corresponds to the amount of revenue ВРкр, which, by analogy with output, is also called break-even point, in monetary units only:

or else:

,

Where UMD– share of marginal income in price.

The conclusion follows from the second formula: the higher the share of variable costs in the sales price of the product (ratio zper / c), the higher the break-even point. Otherwise, the lower the share of marginal income in revenue, the more products the company should produce in order to cover fixed costs and start making a profit.

Another indicator is calculated within the framework of break-even analysis - safety threshold(otherwise called marginal safety margin).This indicator is calculated asthe difference between actual volume and break-even point andindicates how much output can be reduced before the enterprise begins to incur losses. As already noted, the larger the output, the higher the profit. The higher the production volume, the less frightening an enterprise is from fluctuations in market conditions - the more fluctuations in costs and revenue it can safely endure, remaining in the “profit zone.”

Obviously, each specific volume of output has its own volume of security.

Let's look at the break-even analysis technique using an example.

Example.

The Zarya production enterprise produces dumplings. To develop a work plan for the next quarter, a break-even analysis of this single-product production is carried out. Planned variable costs for finished products of the enterprise are 3 per = 39 rubles. Fixed expenses for the quarter will be Z post = 480,000 rub. The selling price of dumplings is planned at the level of c = 67.5 rubles. Break even

.

This volume of production will allow you to cover all costs and reach zero profit. If production for the quarter does not reach, the financial result of the enterprise will be negative, and the activity will be unprofitable.

Based on the level of annual profitability desired by the owners of the enterprise, the following level of target profit has been set - 100,000 rubles. Let's calculate what volume of output will allow us to get such a profit.

Having studied the market situation and the capabilities of their own enterprise, Zarya management planned the production volume of Q dumplings for the next quarter - . With this volume of production, the profit level will be:

P = (c – zper) × Qcr – Zper. = (67.5 – 39) × 20,000 – 480,000 = 90,000 rub.

Break even

Safety threshold:

The company's flexible budget provides for the possibility of an unfavorable situation in the planning period, which may lead to an increase in rent and, accordingly, fixed costs by 40,000 rubles. Managers of the organization do not consider it possible to increase the selling price of dumplings, since it is determined by the market. The simplest way to maintain the estimated level of profit is to cut variable costs. What savings in variable costs (s*per) will allow you to cope with an unfavorable situation?

Consequently, the company should achieve savings in variable costs in the amount of (39 – 37) = 2 rubles. on products. However, technologists and employees of the supply department, having studied all the possibilities for saving variable costs, came to the conclusion that it was impossible to achieve savings of more than 1.3 rubles. What fixed cost savings will this situation require?

Z*post = (c – z*per) × Qplan – P = (67.5 – 37.7) × 20,000 – 90,000 = 506,000 rub.

506,000 – 40,000 = 466,000 rubles.

480,000 – 466,000 = 14,000 rubles.

Thus, in order to compensate for a possible increase in rent, enterprise managers should, in addition to saving variable costs in the amount of 1.3 rubles. on products, it is necessary to find an opportunity to save 14,000 rubles in the existing structure of fixed costs.

Sales volume is the main indicator of a company's performance. It can be expressed in the actual number of units of products sold or in the total amount of funds received into the company’s account after the sale of goods. In economic analysis, gross, net, target and critical OP are calculated. The indicator is used when analyzing profits, costs, and break-even points. The source of information is financial reports, primary accounting documents, and management accounting data.

The central indicator reflecting the performance of any company is sales volume. It shows how many products, works and services the company created and sold. The profit and value of the business depend on the result obtained.

Volume of sales(Sales volume - SV, OP) is an indicator of the company’s operating results, which is represented by the total amount of revenue received over a certain period of sales of products, works, and services. It is often called the volume of product sales and is considered as a synonym for revenue.

Reference! Sales volume in financial analysis is expressed in monetary units (rubles, dollars, euros, etc.). However, for management accounting purposes, the possibility of using natural units (pieces, kg, m, etc.) is not excluded.

It is most convenient to consider the SV indicator as the actual amount of funds received into the company’s accounts during a certain period.

Break-even analysis

In the future, other indicators of economic analysis are calculated on its basis.

• If you subtract the cost of production from the OP, you can get a gross profit - a more accurate reflection of the efficiency of a business entity.
• If you compare the indicator with fixed and variable costs, you can calculate the break-even point.

Important point! When analyzing EP, it is impossible to compare it with the indicator of other companies or the industry average. It is compared with the results of the same company for previous periods or planned targets.

Sales volume reflects not only the company’s performance, but also the situation on the market: if demand for a product decreases, a high-quality substitute appears, or legal restrictions come into force, it will decline.

Sales volume: classification

In modern practice of economic analysis, several types of OP indicator are used:

• Gross - total sales for the reporting period at full prices without taking into account returns, discounts and other adjustments.
• Net - gross OP with the deduction of returns, benefits, discounts and other concessions to customers, which allows it to be used in assessing the efficiency of a company’s functioning and forecasting.
• Target - a planned indicator obtained by calculation based on information about the target profit.

Critical - the minimum amount of income that, even with unfavorable demand, allows the company to avoid losses.

Figure 1. Break-even point and critical sales volume

Formula for calculating sales volume

To determine the volume of product sales, it is not enough to use data from the company’s public financial statements: it will require the accumulation of information from primary accounting documents and internal management accounting documents.

The formula for estimating SV in general can be represented as an identity:

OP = (UPZ + EBIT) / (Tsed - Pred), where:

SPL - the sum of semi-fixed costs;

EBIT - profit before taxes;

Tsed - cost per unit of production;

Pre - variable costs for each unit of goods.

Reference! Semi-fixed costs are expenses that remain unchanged even if the volume of output varies. These include depreciation of buildings and structures, enterprise management costs, rental payments, etc. Variable costs, on the contrary, change along with an increase or decrease in the number of products produced.

The meaning of the indicator and its analysis

Since the OP formula takes into account costs and profit volume, this indicator is used in the analysis:

• Dynamics of actual sales volume.
• Changes in price levels.
• Volatility of production and distribution costs.
• Marginal income.
• Market demand, etc.

Important point! The total sales volume is an absolute indicator. It can be compared with the performance of competing firms when it comes to assessing market shares. In other cases, the dynamics of Sales volume are analyzed, as well as its proximity to the target value.

There is no general normative value for SV. Each company determines for itself a critical sales volume and target values, which become guidelines for changes in the indicator.

Reference! To determine the critical OP, the formula KOP = UPZ / (Tsed - Prev) is used, since the profit at the break-even point is zero.

The process of assessing the dynamics of a company's sales volume is presented in the video

Examples of coefficient calculation

In order to understand the practical application of the formula for calculating sales volume and analyzing this indicator, it is worth considering a ready-made example of calculating this indicator for the Kub company, which sells a standard model of DVRs.

Important point! If a company sells several types of products with different costs and prices, then SV is calculated separately for each type of product.

Conclusion! For three years, the OP of the Kub company has been decreasing. This negative trend occurs against the backdrop of rising EBIT and unit prices. Consequently, the reason for the reduction could only be a drop in the physical quantity of sold products.

It is worth noting that the critical output volume of the enterprise under study varies from year to year. However, it is lower than the obtained value and is 6.5, 6.1 and 6, respectively.

Conclusion! Until the actual SV value approaches the critical value, no action can be taken, but an unfavorable trend should be monitored.

A detailed scheme for calculating the volume of sales of goods, works, services and its critical value is given in a sample compiled on the basis of the tools of the Excel spreadsheet editor.

Questions and answers on the topic

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Calculating the break-even point in Excel with examples

The break-even point reflects the volume of production, sales of goods and services, which covers all costs of the enterprise.

CVP analysis: calculation of marginal income and break-even point

In an economic sense, it is an indicator of a critical situation when profits and losses are zero. This indicator is expressed in quantitative or monetary units.

The lower the break-even point of production and sales volume, the higher the solvency and financial stability of the company.

Break-even point formula in Excel

There are 2 ways to calculate the break-even point in Excel:

1. In monetary terms: (revenue * fixed costs) / (revenue - variable costs).
2. In natural units: fixed costs / (price – average variable costs).

Attention! Variable costs are taken on a per unit basis (not total).

To find breakeven, you need to know:

Fixed costs (not dependent on the production process or sales) - rent payments, taxes, salaries for management personnel, leasing payments, etc.

Variable costs (depending on production volumes) - the cost of raw materials and materials, utility bills in production premises, workers' salaries, etc.

Selling price per unit of goods.

Let's enter the data into an Excel table:

1. Find the volume of production at which the company will receive a net profit. Establish the relationship between these parameters.
2. Calculate the volume of sales of goods at which the break-even point will occur.

To solve these problems, we compile the following table with formulas:

1. Variable costs depend on the volume of products produced.
2. Total costs are the sum of variable and fixed costs.
3. Income is the product of production volume and product price.
4. Contribution margin is total revenue minus variable costs.
5. Net profit is income without fixed and variable production costs.

Let’s fill out the table and see at what output the enterprise will be “in the black.”

Starting from the 13th production, net profit became positive. And at the break-even point it equals zero. Production volume – 12 units of goods. And the income from sales is 120,000 rubles.

How to graph the break-even point in Excel

To clearly demonstrate the economic and financial condition of the enterprise, we will draw up a graph:

1. We decide on the appearance of the graph and click the “Select data” button.
2. For demonstration, we need the columns “Total Costs”, “Revenue”, “Net Profit”. These are the elements of the legend - “Rows”. We manually enter the “Row Name”. And in the “Values” line we make a link to the corresponding column with data.
3. The range of horizontal axis labels is “Production Volume”.

We get a graph like:

Let's change the graph (chart layout) a little.

This demonstration allows us to see that the net profit at the break-even point is indeed “zero”. And it was after the twelfth release of the product that “plus” began.

Where are such calculations needed?

The “break-even point” indicator is in demand in economic practice to solve the following problems:

1. Calculation of the optimal price for the product.
2. Calculation of the amount of costs at which the company still remains competitive.
3. Drawing up a product sales plan.
4. Finding the volume of output at which profitability will appear.
5. Analysis of the financial condition and solvency of the enterprise.
6. Finding the minimum production volume.

Ready-made calculations and templates for analyzing an enterprise’s break-even point:

The results of such calculations are in demand by both internal and external users. Break-even is taken into account when making management decisions and gives an idea of ​​the financial condition of the company. The use of such a model is a way to assess the critical level of production volume and sales of goods and services.

Online break-even point calculator

What is the break-even point and how to calculate it yourself

Let's look at the instructions for independently calculating the break-even point, with two test examples with formulas and graphs for retail trade and manufacturing activities.

The goal of any business is to make a profit. Every businessman has to predict the development of production, which is especially important when planning any new directions in it. Therefore, before the start of implementation, it is necessary to understand how effective the planned project will be, to assess the volume of investments, payback periods and financial risks. To carry out this assessment, there is an economic indicator - break-even point or, as it is also called break-evenpoint - BEP. Let's talk about this important economic tool, the need for its use and calculation methods.

Download two ready-made models for calculating the break-even point in Excel format for retail and industrial activities. In the examples given, you can change the source data to suit your numbers and calculate the BER directly for your project.

What does the break-even point mean, its importance in the functioning of the enterprise

The indicator determines the sales volume required to cover costs. Profit, which is the difference between revenue and expenses, is equal to zero. Those. The break-even point is the level of sales at which there is no profit and no loss.

It is calculated both in natural units and in value equivalent. This economic instrument determines the number of units of products, services or goods that need to be sold to cover costs and reach zero profit, as well as their cost. If the level of sales volume has not reached the calculated BEP indicator, it means that the company is incurring losses, and on the contrary, if it exceeds the sales volume, it means that the organization, having crossed the zero line, is making a profit.

What does the break-even point show?

• The BEP indicator determines such an important aspect of the company’s functioning as its financial stability. For example, an increase in the BEP value indicates objective or private problems in the company that led to a larger sales volume to achieve a zero profit threshold. The reasons for the growth of the indicator are the expansion and change in the structure of production, which invariably entails an increase in trade turnover, fluctuations in market prices, etc.
• The BER value allows the company to analyze the feasibility of investing in a new project, comparing the rate of self-repayment with the required sales volume, and its fluctuations - to establish the causes of problems in the company and their timely elimination, if they are not of a global nature.
• Calculating the break-even point of a project makes it possible to calculate optimal changes in sales volumes and product costs for more comfortable and flexible business. For example, calculate the non-critical value of the reduction in revenue in order to increase sales volumes, while operating at break-even and creating sufficient reserves.

Basic indicators for calculations

The calculation of BEP is based on information from production cost accounts. It is important here to divide them into constants and variables. Fixed expenses include expenses whose value does not change from month to month and does not respond to fluctuations in output and sales. It can be:

• depreciation of machines and equipment;
• salary of the AUP and social contributions accrued to it;
• rental, utility and other payments of an unchangeable nature.

Variable costs include:

• expenses for the purchase of raw materials and supplies for the product manufacturing process;
• payment for fuel and energy resources involved in the work process;
• wages of shop workers (with deductions), etc.

Fixed costs may change due to various reasons, for example, reduction/increase in production capacity, increase in energy tariffs, changes in rental payments, acquisition/disposal of equipment, inflation and other factors. The amount of variable costs fluctuates depending on the volume of output and sales.

Formulas for calculating break-even point

As already mentioned, calculations can be made in physical and monetary terms. Let's look at the basic data needed for calculations in units. Calculation data required:

• fixed costs for the full volume (Zpost);
• unit prices of a product or commodity (Tsed);
• variable costs per unit (Zper/unit).

Formula VER in units: BEPed= Zpost/(Tsed-Zper/unit) shows the sales volume in units to reach zero profit.

Calculating the value of BEP in monetary terms will require the use of the following data:

• fixed costs for the full volume (Zpost);
• revenue (B);
• product unit price (Tsed);
• variable costs for the full volume (Zper) and unit of goods (Zper/unit).

At the first stage of calculations, marginal income (Dm) is found, which is the difference between revenue and variable costs according to the formula: Dm= B - Zper.

Based on it, the coefficient (share) of marginal income in total revenue is calculated Kdm= Dm/V.

Using the coefficient, the value of BER is calculated in monetary terms: VERDEN = Zpost / Kdm

When forecasting new business directions, it is sometimes impossible to calculate the marginal income for the entire sales volume. In this case, the values ​​of price and variable costs per unit of product or product are used, taking as a basis the formula

Dm/unit = C - Zper/unit, where Dm/unit is marginal income per unit.

When calculating the coefficient, this indicator is also used, comparing its value with the price of the product, because it is the revenue from the sale of a unit of goods:

Kdm= Dm/unit/Tsed, and get the coefficient value exactly the same as when calculating the entire sales volume.

So, the break-even point in value terms is calculated using the formula

VERDEN = Zpost / Kdm.

This indicator is also called the profitability threshold, which is very true, since by crossing this threshold - the amount that covers the invested costs, the company begins to make a profit.

Let's look at examples of calculating the break-even point for companies of different types of activities.

Example No. 1: calculating the break-even point for a retail enterprise

Let's calculate the profitability threshold for a women's clothing store. The assortment of a retail outlet is usually quite wide, so the practice of calculating in monetary terms is used here.

Fixed costs of a trading enterprise include costs associated with the work process:

• payment for rent of retail space, communication services, security, utilities, etc.;
• wages of sellers and contributions to extra-budgetary funds;
• advertising expenses.

Variable costs consist of sales volume and purchase price per unit of goods. Let's consider the presented table, which contains data for calculating the profitability threshold broken down into variable and fixed costs, calculated marginal income and its share in total revenue, and also calculated the required sales volume to reach a zero profit level.

Using the formulas, after calculating fixed and variable costs, we calculate:

• marginal income Dm = B - Zper. = 1,420,000 - 650,000 = 770,000 rubles
• margin coefficient Kdm = Dm / V = ​​770,000 / 1,420,000 = 0.542
• break-even point VERDEN = Zpost / Kdm = 155,000 / 0.542 = 285,844 rubles.

Conclusion: to cover the investment, sales in the amount of 285,844 rubles will have to be made, and sales of goods above this level will begin to make a profit.

Download break-even point calculation in excel for retail trade.

Features and methods of calculating the break-even point

The low complexity of the calculations in the previous example is due to the ideal conditions of the implied environment, which do not take into account the constantly changing market.

What is the break-even point and how to calculate it

The calculations of our examples allow for the persistence of such situations:

• the company does not change the price of products when sales volume increases;
• costs (both types) do not change. In reality, an increase in sales volume usually causes an increase in costs and expenses;
• the volume of production assumes full implementation, which is also rare in the process of activity.

Of course, this does not happen in life, but we provide an algorithm for the correct calculation, and the businessman himself has to adjust the calculations in accordance with the current market situation. There are different methods for calculating break-even point:

• mathematical (presented in example No. 1);
• graphic (more visual).

Both methods are very effective in calculating the indicator and are quite simple. Let's look at them using the following example.

Example No. 2: calculating the value of VER for a manufacturing enterprise

Industrial enterprises specializing in the production of products often produce a limited range of homogeneous products, for example, prefabricated parts of one unit. This method of planning production saves costs and greatly facilitates the calculation of the break-even point. For companies that produce a small number of items, it is easier to calculate the BEP indicator in natural values. Expanded production involves unification by product groups. In the presented example, there is a small enterprise that produces five types of products.

The calculation of the break-even point involves expenses grouped by variable and constant characteristics. We calculate the BER indicator in physical terms using the formula:

BEPed= Zpost/(Tsed-Zper/unit) = 281,400 / (674.71 - 332.35) = 930.7 units.

To calculate the indicator in monetary terms, you can use the following formula:

VERDEN = B * Zpost / (B - Zper) = 1,079,000 * 281,400 / (1,079,000 - 565,000) = 590,721.01 rub.

Conclusion: in order to reach a zero profit level, covering the invested costs, you should sell 930.7 units. products worth RUB 590,721.01. Subsequent sales will already be profitable and will begin to make a profit.

The graphical method for determining the value of VER is more visual. To do this, you need to build a graph by grouping the necessary data into a table.

The graph is constructed in the classical system, plotting data on production volume along the horizontal axis and revenue along the vertical axis. Using tabular information, they build revenue and cost lines.

The point of intersection of the line of received (or planned) revenue with the line of total costs is the break-even point. If you lower the perpendicular to the sales volume axis, you can find out the number of products required for sales in order to achieve a state of no losses and no profit. The value expression of this point is determined by drawing a perpendicular to the vertical axis. The graph clearly confirms the correctness of the mathematical calculations - 930.7 units should be sold. in the amount of RUB 580,721.01 to reach zero losses.

Downloadable model for a manufacturing plant.

If you have any clarifying questions about the calculation method or any difficulties using the formulas, ask them on the forum, we will help you figure it out.

Break even

Break even- the sales volume at which the company covers all its expenses without making a profit.

Its value plays an important role in the sustainability and solvency of the company. The degree to which sales volumes exceed the break-even point determines the margin of financial strength (margin of stability) of the enterprise. In turn, how profit grows with changes in revenue is shown by Operating Leverage (operating leverage).

Formula for calculating break-even point

To calculate the break-even point, you need to divide the costs into two components:

• Variable costs- increase in proportion to the increase in production (volume of sales of goods).
• Fixed costs- do not depend on the number of products produced (goods sold) and on whether the volume of transactions grows or falls.

Let us introduce the following notation:

IN	—	sales revenue.
Rn	—	sales volume in physical terms.
Zper	—	variable costs.
Zpost	—	fixed costs.
C	—	price per piece
ZSper	—	average variable costs (per unit of production).
Tbd	—	break-even point in monetary terms.
Tbn	—	break-even point in physical terms.

Formula for calculating the break-even point in monetary terms:

(in rubles, dollars, etc.)

Tbd = V*Zpost/(V - Zper)

Formula for calculating the break-even point in physical terms:

(in pieces, kilograms, meters, etc.)

Tbn = Zpost / (C - ZSper)

Example of calculating the break-even point

Look at the Excel spreadsheet

with a large assortment"
Calculation and graphs

The same data on the graph. Break-even point Tbn = 20 pieces

At the break-even point, the income line crosses and goes above the total cost line, the profit line crosses 0 - it moves from the loss zone to the profit zone.

How fixed costs, variable costs and price affect the break-even point, see Calculation of the break-even point, examples and graphs.

At first glance, the formula for calculating the break-even point is quite simple, and there should not be any difficulties in calculating it. But in reality, everything is not so simple.

Four important assumptions when calculating the break-even point

1. We are talking about revenue (sales volume), so we believe that all for sale produced or purchased products. Warehouse stocks are not taken into account.
2. Variable costs are directly proportional depend on sales volume. This doesn't always happen.

   Procedure and rules for calculating the break-even point

   For example, the case where in order to increase production volume it was necessary to build a new workshop will have to be calculated in a more complex way.

3. Fixed costs do not depend from sales volume. This doesn't always happen either. If, in order to increase the volume of production, it was necessary to build a new workshop, hire more management personnel, increase payment for utilities - this case also does not fit the general formula.
4. Break-even point is calculated for the enterprise as a whole or for some average product.

When calculating the break-even point, probably the most important limitation is assumption 4. To make the calculation for each product separately, you need to know what share of fixed costs falls on each product. If there are many products, calculating break-even points separately for each product becomes a complex task that requires a large amount of calculations.

Look at the Excel spreadsheet
“Break-even point and break-even analysis
with a large assortment"
Profitability, Min. markup, Marginal profit, Margin of safety
Calculation and graphs

The break-even point reflects the volume of production, sales of goods and services, which covers all costs of the enterprise. In an economic sense, it is an indicator of a critical situation when profits and losses are zero. This indicator is expressed in quantitative or monetary units.

The lower the break-even point of production and sales volume, the higher the solvency and financial stability of the company.

Break-even point formula in Excel

There are 2 ways to calculate the break-even point in Excel:

1. In monetary terms: (revenue * fixed costs) / (revenue - variable costs).
2. In natural units: fixed costs / (price – average variable costs).

Attention! Variable costs are taken on a per unit basis (not total).

To find breakeven, you need to know:

Fixed costs (not dependent on the production process or sales) - rent payments, taxes, salaries for management personnel, leasing payments, etc.

Variable costs (depending on production volumes) - the cost of raw materials and materials, utility bills in production premises, workers' salaries, etc.

Selling price per unit of goods.

Let's enter the data into an Excel table:

1. Find the volume of production at which the company will receive a net profit. Establish the relationship between these parameters.
2. Calculate the volume of sales of goods at which the break-even point will occur.

To solve these problems, we compile the following table with formulas:

1. Variable costs depend on the volume of products produced.
2. Total costs are the sum of variable and fixed costs.
3. Income is the product of production volume and product price.
4. Contribution margin is total revenue minus variable costs.
5. Net profit is income without fixed and variable production costs.

Let’s fill out the table and see at what output the enterprise will be “in the black.”

Starting from the 13th production, net profit became positive. And at the break-even point it equals zero. Production volume – 12 units of goods. And the income from sales is 120,000 rubles.



How to graph the break-even point in Excel

To clearly demonstrate the economic and financial condition of the enterprise, we will draw up a graph:

1. We decide on the appearance of the graph and click the “Select data” button.
2. For demonstration, we need the columns “Total Costs”, “Revenue”, “Net Profit”. These are the elements of the legend - “Rows”. We manually enter the “Row Name”. And in the “Values” line we make a link to the corresponding column with data.
3. The range of horizontal axis labels is “Production Volume”.

We get a graph like:

Let's change the graph (chart layout) a little.

This demonstration allows us to see that the net profit at the break-even point is indeed “zero”. And it was after the twelfth release of the product that “plus” began.

Where are such calculations needed?

The “break-even point” indicator is in demand in economic practice to solve the following problems:

1. Calculation of the optimal price for the product.
2. Calculation of the amount of costs at which the company still remains competitive.
3. Drawing up a product sales plan.
4. Finding the volume of output at which profitability will appear.
5. Analysis of the financial condition and solvency of the enterprise.
6. Finding the minimum production volume.

Ready-made calculations and templates for analyzing an enterprise's break-even point.

Determining the break-even point is the cornerstone of the effective functioning of any enterprise. The calculation of this indicator is of paramount importance not only for the owners of the enterprise, but also for its investors. If the former must understand when production becomes profitable, then the latter must be aware of the value of this indicator in order to make an informed decision about providing financing.

What is the break-even point and what does it show?

This indicator helps to understand when a company stops incurring losses, but is not yet able to earn a profit. At the same time, the production and sale of any additional unit of production entails the formation of profit. Thus, the break-even point is a certain starting point from which the enterprise can begin to develop effectively. Those. this indicator is a kind of indicator that the company is moving on the right path.

This indicator is also called profitability threshold or simply BEP(from English break-evenpoint). It characterizes the volume of production of a product at which the proceeds from its sale will be equal to the costs of its production.

What is the economic meaning of determining the value of this indicator? The profitability threshold indicates the enterprise's ability to recoup its costs.

The break-even point occurs when expenses are covered by income. The company records profit when this indicator is exceeded. If this indicator is not achieved, then the company suffers losses.

So, the break-even point shows:

• the level above which the company begins to record profits;
• the minimum acceptable level of revenue, if below which the production of products ceases to pay off;
• the minimum acceptable level of pricing, below which one cannot fall.

In addition, the determination of this indicator allows:

• identify problems that are associated with changes in the break-even point over time;
• identify how it should be possible to change the volume of output of a product or its production when the price varies;
• calculate how much it is advisable to reduce revenue so as not to incur losses.

Determining the profitability threshold helps investors determine whether a given project is worth financing if it breaks even for a given sales volume.

Video - break-even point analysis:

Thus, most management decisions are made only after the break-even point has been calculated. This indicator helps in calculating the critical value of sales volume at which the company's costs become equal to revenue from sales of goods. Even a slight decrease in this indicator will indicate the beginning of bankruptcy of the company.

Important! When the company crosses the break-even point, it will begin to record profits. Until then, it operates at a loss.

Calculation formulas

The profitability threshold can be measured in physical or monetary terms.

In both cases, to determine the profitability threshold, it is important to first calculate the costs of the enterprise. To do this, we introduce the concept of fixed and variable costs.

Fixed costs do not change over time and are not directly dependent on sales volume. However, they can also change under the influence of, for example, the following factors:

• changes in company performance;
• expansion of production;
• changes in rental prices;
• changes in general economic conditions, etc.

These typically include the following costs:

• payment of management expenses;
• rent;
• depreciation deductions.

Variable costs are a more unstable value, which depends on changes in production volume. This type of cost includes:

• payment of wages and other deductions to workers;
• costs of raw materials and the purchase of necessary materials;
• purchase of components and semi-finished products;
• energy payment.

Accordingly, the amount of variable costs will be higher, the greater the production volume and sales volume.

Variable costs per unit of manufactured goods do not change when the volume of its production changes! They are conditionally permanent.

Having defined the concept and types of costs, let’s find out how to calculate the break-even point (BEP) in kind. To do this we use the following formula:

BEP (in physical terms) = fixed costs / (unit selling price - variable costs per unit)

It is advisable to use this formula when the enterprise is engaged only in the production of one type of product. However, this is extremely rare. If an enterprise produces a wide range of products, then indicators for each type are calculated separately using a special extended formula.

When calculating the break-even point in monetary terms another formula is used:

BEP (in monetary terms) = (fixed costs / marginal profit) * revenue from product sales

For correct calculations, we use actual data on costs and revenue for the analyzed period. In this case, indicators that relate to the same analysis period should be used.

However, the use of this formula is correct when determining BEP with marginal profit, which is positive. If it is negative, then the BEP value is determined as the sum of fixed and variable costs that are relevant to a given period.

Video about the importance of determining the profitability threshold in business:

Or you can use another formula for calculating the profitability threshold:

BEP (in monetary terms) = Fixed costs / KMD,

where KMD is the marginal profit coefficient.

In this case, the KMR can be determined by dividing the MR (marginal income) by revenue or price. In turn, MD is obtained using one of the following formulas:

MD = V - PZO,

where B is revenue,

VZO – variable costs for sales volume.

MD = C - PZE,

where C is the price,

PZE – variable costs per unit of goods.

Calculation examples

For greater clarity, let’s look at examples of calculating the break-even point using the example of an enterprise and a store.

For an industrial enterprise

Let's say the following conditions are given. The company produces one type of product. At the same time, the cost per unit of production is 50,000 rubles. Price – 100,000 rubles. Fixed costs - 200,000 rubles. It is necessary to calculate the minimum volume of goods produced at which the enterprise will reach the profitability threshold. Those. we need to calculate the BEP in physical terms. We use the above formula and get:

BEP (in physical terms) = 200,000/(100,000-50,000) = 40 (product units).

Conclusion: thus, when producing at least 40 units of product, the enterprise will reach the break-even point. An increase in the volume of products produced by the enterprise will lead to profit.

For the store

In the following example, we will calculate the break-even point for a store. Let’s assume that the store is a grocery store and has the following fixed costs (in rubles):

• rent of space – 80,000;
• salaries of managers – 60,000;
• insurance premiums – 18,000;
• utility bills - 10,000.

Total: 168,000 (rubles).

The conditions also give the values ​​of the cost variables:

• energy payment – ​​5,000;
• raw material costs – 10,000.
• Total: 15,000 (rubles).

Let’s assume that the amount of revenue is 800,000 rubles. Let's define BEP in cost terms. First, let's calculate the marginal profit. To do this, subtract variable costs from revenue and get 800,000 – 15,000 = 785,000. Then the KMD will be 785,000 / 800,000 = 0.98.

Then the break-even point will be equal to fixed costs divided by the resulting coefficient, or 168,000/0.98 = 171,429 rubles.

Conclusion: Thus, the store must sell goods worth 171,429 rubles in order for income to be greater than expenses. All subsequent sales will bring net profit to the store.

Schedule

In order to find the profitability threshold, you can use the graphical method of calculating this indicator. To do this, we will display on the graph fixed and variable costs, as well as total (gross) costs. The break-even point graphically corresponds to the point of intersection of the gross revenue and total cost curves.

Let's look at this with an example.

The following conditions are given (in rubles):

• revenue amount – 100,000;
• production output – 100 (pieces);
• fixed costs – 25,000;
• variable costs – 30,000.

Having marked these data on the graph, we get the following conclusion: the enterprise will be at the break-even point when it receives income in the amount of 35,700 rubles. Thus, if an enterprise sells goods in quantities of more than 35 units, then it will record a profit.

Calculating the break-even point using formulas in Excel

It is very easy and convenient to calculate the profitability threshold using Excel - to do this, you just need to enter the initial data into the appropriate table, after which, using programmed formulas, we will obtain the value of the profitability threshold for our case, both in monetary and in kind terms.

You can download the calculation of the break-even point in Excel for a manufacturing enterprise specializing in the production of parts in the engineering industry at.

The graph and formula for calculating the break-even point in Excel for the general case are given

“How many products need to be produced and sold? What price should I set for it to start making a profit?” — these questions concern every entrepreneur. The answer can be given by calculating the break-even point (the situation in which expenses will equal income).

After this point has been found, you can begin to optimize the enterprise’s activities: produce more or less products, or change prices.

At the moment when revenue exceeds the break-even point, we can say that the company is making a profit. Otherwise, it suffers losses.

Economic model of the break-even point

To calculate the break-even point, several axioms should be defined:

• Expenses and income are described as a linear function (i.e., the rate of change is constant);
• In the analyzed period, prices, as well as production costs, remain unchanged;
• The structure of manufactured products, as well as production capacities, do not change;

3 stages of calculating the break-even point according to A. D. Sheremet

Each calculation requires a certain sequence.

Thus, the Russian economist A.D. Sheremet identified 3 stages to optimize the activity of an enterprise by calculating the break-even point:

1. First you need to collect information about profits received by the enterprise, as well as the costs incurred;
2. Next, you need to calculate fixed and variable costs, find the break-even point and safety zones;
3. The final stage should be determining the quantity of products necessary to implement to ensure the financial stability of the enterprise;

It can be seen from this that ultimately the enterprise must be determined to have a minimum income at which it can continue its activities.

Methods for calculating the break-even point

The main indicators that will have to be used when determining the break-even point are:

P – product price;

X – volume of manufactured products required for sale;

FC – fixed costs (do not depend on the quantity of products produced, for example, wages of employees);

VC (X) – variable costs (increase with each unit of production);

S – revenue for a certain period;

R – profitability.

You can find the break-even point in various ways, depending on the available information.

First method: costs and sales volume are known

Having information about costs, as well as the quantity of products that need to be sold, it is possible to determine the minimum price for a product that allows the enterprise to work “to break even.”

The formula itself looks like this:

P = (FC + VC (X)) / X.

Second method: price and costs are known

Here, knowing the price and costs, the volume of product sales is determined, which will allow you to get zero profit.

Formula:

X = FC / (P – VC).

The absence of the variable “(X)” is explained by the fact that the formula takes into account only the costs of producing 1 unit of output.

In practice, the price of a product is set in advance based on costs and market realities, so determining quantity is the most common task facing management.

Calculation of the break-even point for the service and trade sectors

The method of determining the break-even point for the service and trade industries is complex and uncertain. The number of goods in trade can reach several thousand and calculating the cost of each product turns out to be impossible.

In the service industry, costs cannot be accurately determined due to the uniqueness of each service provided. In these cases, it is preferable to use profitability indicators. Profitability is the difference between price and cost of production.

Formula:

S = FC/R.

Calculation of break-even point in Excel

To perform the calculation, you must determine the main indicators.

Let's assume that:

• Fixed costs = 100;
• Variable costs = 50;
• Price = 75;

You need to create and fill out a table:

• Fixed costs = C 2
• Variable costs = A 9*$C$3
• Total costs = B9+C9
• Income = A 9*$C$4
• Net profit = E9 – D9

Based on this table, it can be seen that the break-even point is reached with the release of the 4th product, and subsequent release increases the organization’s profit.

Practical benefits of using the break-even point

Determining the break-even point is one of the main tasks facing the managers and employees of the enterprise.

Thus, determining the equilibrium level of income and expenses will allow startup entrepreneurs who enter the market with a unique product to set the optimal price for their product.

In large organizations, it is very important to establish the process of production and sales of products. The long-term nature of the activity requires careful attention to planning production and sales of products.

For example, a beverage manufacturer must determine the price and production volume that will best satisfy demand and maximize profits. Excess production leads to unnecessary costs, and insufficient supply leads to lost profits.

In addition to the organizations themselves, this indicator is used by investors, banks, and business incubators to decide on the provision of funds or premises.

Strengths and weaknesses of the break-even point model

Despite this, this model has serious disadvantages:

1. The linearity of the function does not allow us to take into account changes occurring in the market. Characteristics such as seasonality, inflation, increased competition are not displayed in any way on the graph;
2. Business costs may change over time, which is also not taken into account when calculating the break-even point;
3. The limitation of demand only by price in the model does not reflect the real situation on the market. Demand is also influenced by other important characteristics of the product, such as quality or fashion.

Determining the break-even point

You can use a chart to determine the break-even point. To build it, you need to have information about fixed and variable costs, as well as prices for 1 unit of production.

The graph displays 2 straight lines:

1. Expenses;
2. Quantity of products (note: tables);

At the point where they intersect there will be a break-even point. The higher the direct revenue relative to it, the greater the profit the organization will receive.

Plotting the break-even point

Calculating the break-even point for a grocery store (example)

To calculate a store's break-even point, it is necessary to determine its fixed costs. Let's take a grocery store as an example.

Let's assume that:

• Rent of premises – 80,000 rubles;
• Salary for sellers – 60,000 rubles;
• Insurance premiums (30%) – 18,000 rubles;
• Utility costs - 10,000 rubles.
• Purchase of food products - 800,000

The total costs will be 968,000 rubles. The rate of return will be set at 50%.

According to the formula, we get:

S = 968000 / 50% = 1936000 rub.

With an average check of 500 rubles. the store will need to serve 3,872 customers per month.

Calculation of the break-even point for an enterprise (example)

Let’s say an enterprise produces 1 type of product, the cost of 1 unit of which is 50,000 rubles. The price is 100,000 rubles. Fixed costs - 2,000,000 rubles.

It turns out:

X = 2000000 / (100000 - 50000) = 40 units of production.

Bottom line

To summarize, it should be said that the break-even point model is useful for planning the activities of an organization: it allows you to determine the required volume of output to make a profit, and also helps to determine the price of the product.

In addition, the relative simplicity of this calculation allows you to derive the necessary indicators quite quickly and literally on your knees.