Determining the break-even point. Break-even point in physical and monetary terms: concept, calculation formulas and simple examples The break-even point should be equal to

In any business, it is important to calculate at what point the enterprise will fully cover losses and begin to generate real income. For this purpose, the so-called break-even point is determined.

The break-even point shows the effectiveness of any commercial project, since the investor must know when the project will finally pay off, what is the level of risk for his investment. He must decide whether to invest in the project or not, and calculating the break-even point in this case plays an important role.

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

Break even ( break-evenpoint–BEP) – sales volume at which the entrepreneur’s profit is zero. Profit is the difference between income (TR – total revenue) and expenses (TC – total cost). The break-even point is measured in physical or monetary terms.

This indicator helps determine how many products need to be sold (work performed, services provided) in order to break even. Thus, at the break-even point, revenues cover expenses. If the break-even point is exceeded, the company makes a profit; if the break-even point is not reached, the company incurs losses.

The BEP value of an enterprise is important in determining the financial stability of the company. For example, if the BEP value is rising, this may indicate problems related to making a profit. In addition, BEP changes with the growth of the enterprise itself, which is caused by an increase in turnover, the establishment of a sales network, price changes and other factors.

In general, calculating the break-even point of an enterprise makes it possible to:

• determine whether to invest money in the project, given that it will only pay off with the next sales volume;
• identify problems in the enterprise associated with changes in BEP over time;
• calculate the value of changes in sales volume and product price, that is, how much the sales/production volume should change if the price of the product changes and vice versa;
• determine by what value revenue can be reduced without ending up at a loss (if actual revenue is greater than estimated).

How to calculate your break-even point

Before finding the break-even point, you must first understand which costs are fixed and which are variable, since they are mandatory components for the calculation, and it is important to divide them correctly.

Constants include: depreciation deductions, basic and additional salaries of administrative and management personnel (with deductions), rent, etc.

Variables include: basic and additional materials, components, semi-finished products, fuel and energy for technological needs, basic and additional wages of main workers (with deductions), etc.

Fixed costs do not depend on production and sales volume and practically do not change over time. The change in fixed costs can be affected by the following factors: growth/decrease in the capacity (productivity) of the enterprise, opening/closing of a production workshop, increase/decrease in rent, inflation (depreciation of money), etc.

Variable costs depend on production volume and change with changes in volume. Accordingly, the greater the volume of production and sales, the greater the amount of variable costs. Important! Variable costs per unit of output do not change with changes in production volume! Variable costs per unit of production are conditionally constant.

Calculation formula

There are two formulas for calculating the break-even point - in physical and monetary terms.

• Fixed costs for volume (FC– fixed cost);
• Unit price of goods (services, works) (P– price);
• Variable costs per unit of production (AVC – averagevariablecost).

BEP=FC/(P-AVC)

In this case, the calculation results will result in a critical sales volume in physical terms.

• Fixed costs (FC – fixed cost);
• Revenue (income) (TR – total revnue) or price (P – price);
• Variable costs per volume (VC - variablecost) or variable costs per unit of production (AVC - average variable cost).

First, you need to calculate the marginal income ratio (the share of marginal income in revenue), because this indicator is used when calculating the break-even point in monetary terms and marginal income. Marginal revenue (MR – marginalrevenue) is found as the difference between revenue and variable costs.

Since revenue per unit is price (P=TR/Q, where Q is sales volume), contribution margin can be calculated as the difference between price and variable costs per unit.

The marginal income ratio is calculated using the following formula:

or (if MR is calculated based on price):

Both formulas described above for calculating the contribution margin ratio will lead to the same result.

The break-even point in monetary terms (this indicator is also called the “profitability threshold”) is calculated using the following formula:

BEP=FC/KMR

In this case, the calculation results will result in a critical amount of revenue at which the profit will be zero.

To provide greater clarity, it is necessary to consider specific examples of calculating the break-even point for various types of organizations.

An example of calculating the break-even point for a store

In the first example, we will calculate the break-even point for a trading enterprise - a clothing store. The specifics of the enterprise are such that it is inappropriate to calculate the break-even point in physical terms, since the range of goods is wide, prices are different for different product groups.

It is advisable to calculate the break-even point in monetary terms. Fixed costs associated with operating a store include:

• for rent;
• salaries of sales consultants;
• deductions from wages (insurance contributions - 30% of the total wages);
• for utilities;
• for advertising.

The table shows the amounts of fixed and variable expenses.

In this case, we will take the amount of fixed costs equal to 300,000 rubles. Revenue is 2,400,000 rubles. The amount of variable costs, which include purchase prices of items, will be 600,000 rubles. Marginal income is equal to: MR=2400000-600000=1800000 rubles

The marginal income coefficient is equal to: K MR = 1800000/2400000 = 0.75

The break-even point will be: BEP=300,000/0.75=400,000 rubles

Thus, the store needs to sell clothes worth 400,000 rubles to make zero profit. All sales over 400,000 rubles will generate profit. The store also has a financial strength margin of 1,800,000 rubles. The margin of financial strength shows how much a store can reduce revenue and not go into the loss zone.

An example of calculating the break-even point for an enterprise

In the second example, we will calculate the break-even point for the enterprise. Small and medium-sized industrial enterprises often produce homogeneous products at approximately the same prices (this approach reduces costs).

The break-even point will be equal to:

BEP=300000/(400-320)=3750 pcs.

Thus, the company needs to produce 3,750 units to break even. Exceeding this volume of production and sales will lead to profit.

• the company keeps the same price as sales volume increases, although in real life, especially over a long period of time, this assumption is not entirely acceptable;
• costs also remain the same. In fact, as sales volume increases, they usually change, especially at fully loaded capacity, where the so-called law of increasing costs begins to work and costs begin to grow exponentially;
• TB implies the complete sale of goods, that is, there are no remaining unsold goods;
• the TB value is calculated for one type of product, therefore, when calculating an indicator with several different types of goods, the structure of types of goods must remain constant.

Break-even point chart

For clarity, we will show how to calculate the break-even point (example on the chart). You need to draw a revenue line, then a line of variable costs (sloping line) and fixed costs (straight line). The horizontal axis shows sales/production volume, and the vertical axis shows costs and income in monetary terms.

What is the break-even point in physical and monetary terms, and why does a business need it? Calculation: formulas and examples in spreadsheets and graphs.

Break-even point (BPU) is one of the key indicators used in management accounting. When making calculations for a future startup, knowing your TBU will help you understand whether it makes sense to launch the project. But it’s never too late to calculate it for an operating business. The meaning of management accounting for the owner and management of the company is that informed decisions are made based on its data. Knowing the TBU and the formulas that help calculate it allows you to understand how things are going with the return on business, and if there are problems with this, what is going wrong and whether the situation can be improved.

The concept of break-even point in physical and monetary terms

The break-even point (BPV) in monetary terms is the amount of revenue, upon reaching which the business completely recovers its expenses - it goes to zero, and then begins to work in profit. You can say it another way: this is the border at which revenue becomes profit.

TBU is considered not only in monetary, but also in kind. In physical terms, this indicator answers the question of how many goods or services a business must sell during the billing period (usually a month, but other options are possible) in order to receive the revenue it needs to cover expenses.

Revenue in business is usually called the amount of obligations in monetary terms that he fulfilled to counterparties during the billing period. Money for transactions closed during the period may be received later; the key thing is that the obligations are fulfilled. At the same time, money in the cash register and on the account that entered the business as an advance payment for transactions for which obligations have yet to be fulfilled are not considered revenue. They will become revenue only when the business fulfills its obligations. Revenue is needed to calculate the company's operating and net profit and a number of other indicators, including the break-even point.

Let's look at a primitive example. A single entrepreneur sells socks at a clothing market. He buys goods and pays rent for the retail space. These are his expenses. The break-even point in monetary terms is the amount he must trade to cover his costs. Anything more is his earnings, on which, however, he will still have to pay taxes. And TBU in physical terms is how many pairs of socks he needs to sell for this.

“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 a break-even point chart

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.

Break even (break-even point) - a point on the break-even chart in the coordinates revenue-costs / months (period) or the volume of sales of products and services calculated by the formula equal to the volume of production at which the company’s expenses are compensated by its income. The production and sale of the subsequent product unit brings the company its first profit.

The economic meaning of the break-even point is revenue at which profit is zero or revenue can cover all the company’s fixed and variable costs. Reaching the break-even point means reaching the recoupment of the company's total costs.

Break-even point value:

• The break-even point shows from what amount received into the company's account the profit begins.
• knowledge of the break-even point can determine the minimum level of revenue below which production will not pay off;
• The break-even point indirectly shows below what price you cannot fall when selling a product.

Break-even point is calculated in units of production, in monetary terms or taking into account the expected profit margin. Classically, the break-even point, calculated from the number of units of production, assumes the recoupment of total costs.

Break-even point formula in monetary terms:

TB d = (V x W post) / (V - W lane)

Where:
TB d - break-even point in monetary terms;
B - sales revenue;
Z post - fixed costs;
Z lane - variable costs.

Break-even point in physical terms (in units of production):

TB n = Z lane / (C - Z sp)

Where:
Z lane - variable costs;
P - price per unit of production;
Z sp - average variable costs per unit of production.

There is a certain mutual influence and interdependence between costs, production volume and profit. It is known that, subject to all other conditions being equal, the growth rate of profits always exceeds the growth rate of product sales. With an increase in the volume of product sales, the share of fixed costs in the structure of product costs decreases and the “extra profit effect” appears.

• horizontally – period control points (days of the month, months or years),
• vertically – revenue in rubles.
• also vertically – the company’s expenses for the same period in rubles.

The break-even point is the point at which the revenue line crosses and goes above the total (gross) cost line. If you plot the profit line on the same chart, then the break-even point will show the control point on the horizontal axis of the chart (period), where the profit line crosses 0 and moves from the loss zone to the profit zone.

Break-even analysis(CVP analysis - cost volume profit) or break even point (break point, break-even point in this case) shows what can happen to a company’s profit when the volume of production and (or) sales of products, services changes, prices and basic cost parameters change companies.

Entrepreneurs who are planning to open a store or buy a ready-made one are concerned about how much and at what pace they need to sell in order to cover losses and reach profit. To do this, the break-even point (TB) is calculated - that is, a state in which costs are equal to income and net profit is zero. Let's look at the most common ways to calculate this indicator.

Break-even point: by eye

Let’s assume that 80 thousand rubles are spent on renting premises per month, 60 thousand rubles on salaries to sellers, 18 thousand rubles on insurance premiums, 10 thousand rubles on utilities, 800 thousand rubles on purchasing goods.

The markup in the store is 25%. We sum up all the expenses and divide them by the markup. We calculate the sales volume at which expenses equal income:

(80 + 60 + 18 + 10 + 800)*1000/25% = 3 million 872 thousand rubles.

To reach the break-even point, you need to earn at least 3 million 872 thousand/30 ≈ 13 thousand rubles per day.

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By marginal income

The following data will be required:

• Fixed expenses (Fpost), which include rent, communications, security, utilities, salespersons’ salaries, contributions to insurance, salary and pension funds, taxes and advertising costs,
• revenue (B);
• variable costs for the full volume (Rper),

are calculated using the formula: Sales volume (Or)*Average purchase price of goods (PP)

To calculate your break-even point, you will need systematic data on expenses and income. With the Business.ru program you can receive detailed cash flow reports and carry out the necessary calculations to determine the effectiveness of your business. You can use the program's functionality remotely at a time convenient for you.

First, we calculate the marginal income (DM). This is the delta between revenue and variable costs: MD = B - Rper.

Then we calculate the value of the break-even point in monetary terms: TBden = Rpost / Kmd

For example, revenue is 1.5 million rubles, variable expenses are 700 thousand rubles, and fixed costs are 155 thousand rubles per month.

(1) MD = 1,500,000-700,000 = 800,000 rubles

(2) Kmd = 800,000/1,500,000 = 0.53

(3) TBden = 160,000/0.542 = 292,452 rubles.

Consequently, the store will begin to make a profit when sales exceed 292,452 rubles.

Calculation per unit of goods

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When you are just starting a business or occupying a new niche in the market, you cannot always calculate the marginal income for the entire volume of goods sold. In this situation, you can use the values ​​of the purchase and sale prices:

MD/unit = ZTs-TsR, where TsR is the selling price of a unit of goods.

The marginal income ratio is calculated as follows:

Kmd = MD/unit/PC.

TBden = Rpost / Kmd

How to calculate your break-even point

Break-even point: chart

You can determine the break-even point using the chart. To do this, you will need the level of fixed costs, the average purchase and sales price.

Two curves are constructed: the first - all costs (Рп+Рpost), the second - sales revenue. The point at which they intersect is the desired quantity.

Break-even point: online

Those who do not like to bother with tables, calculations and graphs can use a calculator on the Internet (http://allcalc.ru/node/759).

It is enough to enter fixed costs, costs per unit of goods, volume of units, selling price into the appropriate cells and click calculate. The calculator itself will calculate the break-even point.

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Direct costing

Let’s say our store presents positions A, B, C and D:

Let’s use the methods from direct costing and calculate the range of break-even points.

TBden=Рpost/(1-Kr.per), where Kr.per is the share of variable costs in revenue,

Kr.per = Rper/V.

We will also calculate the marginal income for each product and its share in revenue.

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