Various ways to analyze break-even. What is the break-even point and how to calculate it Sales income at the break-even point

To calculate the break-even point of an enterprise in money, little is required - knowledge of key performance indicators and a simple formula, the principles of application of which we will consider in the article. By calculating the break-even point, you can solve several problems - determine the volume of products that need to be produced, set the price correctly and achieve maximum profitability. After calculating the parameter, you can begin to solve other problems - optimizing business activities, as well as reducing or increasing the volume of products sold. Failure to make payments can lead to serious losses or even bankruptcy.

What is the essence of the break-even point, and what does it help determine?

The break-even point in English is designated as BEP, and in decoding - break-even point. This term characterizes the sales volume, upon reaching which the businessman’s profit reaches zero. In this aspect, the concept of profit is the difference between the enterprise's income (TR) and its costs (TC). The break-even point is calculated in two forms - monetary or in kind.

The presence of this indicator allows you to determine how much goods need to be sold or how many services to provide for the company to break even. It turns out that at the break-even point, the profit received completely covers the costs, but the enterprise does not bring any net income. If an organization does not achieve the calculated parameter in the course of its activities, it loses money.

The BEP indicator is necessary for any company to determine the level of stability and ability to make a profit.

If it goes up, this indicates that business processes are not organized correctly.

However, changes in the BEP point during development are normal. This is due to changes in the volume of trade turnover, the emergence of new markets, adjustments in pricing policy and other aspects.

What is BEP for?

Calculating the break-even point is an opportunity to solve the following problems:

Understand whether it makes sense to invest money in a project, taking into account the fact that payback can only be achieved with the next sale of the product volume.
Identify problems in the company associated with changes in the level of the break-even point over time.
Find out by what level you need to reduce revenue so as not to remain “in the red.”

Main stages of calculation

According to the theory of Sheremet A.D. (famous economist) the determination of BEP takes place in three stages:

Information is collected that is necessary for calculations and analysis. At the same stage, production volumes, costs and profits are analyzed.
Calculation of the volume of costs (fixed and variable). Here you need to calculate the break-even point and determine the safety zone in which the risk of unprofitable production is minimized.
Assessing the required level of implementation or production process that can ensure the financial stability of the company.

Once the break-even point is determined, the company can focus on the existing indicator, but should not approach the potentially dangerous zone.

Types of costs

Before calculating BEP, it is worth understanding which expenses are fixed and variable, because their presence is required during the calculation.

Costs are:

Constant - depreciation deductions, salaries of the administration and management staff (basic and additional), rent, and so on.
Variables - purchase of components, fuel, semi-finished products, basic and additional materials necessary for production. Workers' wages also fall into this category.

In order not to make a mistake in your choice, it is worth understanding the features of each type of expense:

Fixed costs are those company costs that do not depend on sales and production volumes. These parameters remain constant over time. A change in indicators is possible only if the company’s productivity decreases or increases, production shops start or stop, rent increases or decreases, an inflationary component appears, and so on.
Variables are expenses that depend directly on the capacity of the enterprise. If production volume changes, costs also change. It is worth considering that in the case discussed above, variable costs remain unchanged relative to the unit of production.

Today, there are two formulas that allow you to calculate the break-even point - in cost (monetary) and in physical terms. Let's consider the calculation principles for each option.

The break-even point in physical form is calculated as follows: BEP = FC/ (P-AVC).

This formula uses the following components:

FC - fixed costs.
AVC - variable costs.
P is the cost of a unit of product (good, service, work).

After substituting the results, you can get the BEP parameter in its natural form.

The next step is to calculate the break-even point using a formula that allows you to obtain the parameter in cost form.

To get started, use the following expression - MR=TR-VC. The following components are used here:

MR - marginal income.
TR - profit (revenue), price.
VC are costs that are variable in nature.

After calculating MR, it is necessary to proceed to calculating the coefficient, without which it will not be possible to calculate the break-even point for monetary terms.

Taking into account the fact that revenue per unit of goods represents the price and is calculated using the formula P=TR/Q, where the last element is the volume of products sold, marginal profit can be calculated as the difference between the cost P and variable costs from accounting per unit of goods (AVC ). As a result, the formula looks like this: MR = P-AVC.

To calculate the marginal profit ratio (K MR), it is enough to divide MR by TR or by P (when calculating the parameter taking into account price). Regardless of the chosen formula, the result will be identical.

It remains to calculate the break-even point for the cost expression. To do this, the obtained data must be substituted into the formula BEP=FC/K MR. As a result, you receive data on the volume of revenue, upon reaching which profit will compensate for losses.

Strengths and weaknesses of the method

The considered model allows us to calculate the approximate parameters at which the company will begin to generate income (work “in plus”). In addition, using these formulas you can find out the estimated cost of a product or production volume. But this calculation also has a number of disadvantages:

An organization's expenses change over time, which is not taken into account in the process of calculating the break-even point.
The function used is linear, which makes it impossible to determine market trends and take them into account in the calculations. We are talking about such characteristics as increased competition, inflation component, seasonality and other parameters.
Demand is limited only by the cost of the product and does not reflect the real situation. The demand factor is also influenced by a number of other parameters of the product, for example, fashion or quality.

Break-even point - from the planning stage to control

Calculating BEP allows you to competently plan the company’s work and control its work in the future. The first step is drawing up a financial plan, after which you need to go through several stages:

Analyze the progress of affairs in the company and the current situation on the market. The main attention should be paid to internal factors, namely the supply mechanism, management and others. At this stage, it is worth considering steps to eliminate existing risks.
Predict the cost of finished goods in the future. The information obtained in the first step allows you to determine the correct enterprise policy. It is important to clearly define the pricing policy, take into account various types of risks and economic features. Here it is worth developing measures necessary to eliminate negative factors.
Calculate variable and fixed costs. Their features were mentioned earlier, but it is worth noting that the volume of such costs should include those stages of manufacturing the goods, including those at the initial stage of production. If you ignore these indicators, your idea of the break-even point will be distorted.
Calculate BEP. How to do this correctly was discussed above. After calculating the parameter, it is necessary to determine the safety margin. After this, the volume of goods sold is determined.
Determination of pricing policy. In order to accurately calculate break-even, it is worth returning to the second stage and, based on the information received, recalculating BEP and finding updated safety margin parameters. If the result is not satisfactory, you can perform the calculations again, but use different price parameters.
Final decision on the plan. Using information about the cost of selling products and their volumes, it is worth calculating the break-even point. It is important to make two plans - financial and sales.

At the final stage, it remains to control breakeven. This work is complex and includes many components, namely control of cost, goods, costs of its production, implementation of the sales plan, profit receipts, and so on.

Results

Despite the presence of a certain error, calculating the break-even point is an important step for any enterprise. The presence of this parameter allows you to see the minimum that is necessary for profitable activity.

Alexander Kaptsov

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Business activity of any scale involves making a profit. It is important for entrepreneurs to understand how long it will take for the company to reach the level of real income. Is this where the need to calculate the break-even point arises? What is this indicator? How to define it? What problems do entrepreneurs face when calculating and analyzing the break-even point, read the website

What does the break-even point show? Definition and meaning

In an economic sense, the break-even point is the income of a business organization at which the net profit indicator will be zero. In other words, the amount of revenue covers all expenses of the enterprise, both permanent and variable. Reaching the break-even point means recouping the total costs of the enterprise. Consequently, the company's further activities (and its subsequent implementation) will receive the status of profitable. As they say: the company will start working in profit.

What does a break-even indicator demonstrate to a businessman:

What amount should be received into the company’s account? so that truly profitable activities can begin. What is the threshold for profitability in monetary terms? A conditional example, 100 rubles of income means zero work, and starting from 101 rubles, the company is in profit.
What is the minimum sales volume . You can’t go lower, otherwise you won’t be able to recoup production.
Indirectly indicates the minimum selling price . It becomes clear below what level there is no point in selling products.

The break-even indicator plays a major role in the planned investment. It reflects the effectiveness of the proposed project: payback time, degree of risk. Based on calculations, a business person can always determine whether this investment option is profitable for him or whether it is not worth participating in a risky venture.

What indicators are involved in calculating the break-even point?

When calculating the threshold beyond which real profit begins, it is necessary to determine the types of costs.

They are:

1.Permanent - independent of how much product is produced and how much of the finished product is sold. This expense may change with an increase/decrease in production capacity, a change in rent, during the depreciation of the ruble or inflation, or with a decrease (increase) in production space.

Rent.
Depreciation deductions.
Salary of personnel from among administrators and managers (including deductions).
Utility payments.
Other expenses that do not change from month to month.

2. Variables – depending on the volume of products produced. Essentially, they increase as volumes of goods produced and, accordingly, sales increase. And in the same way, they decrease.

Among the variable (changing) expenses:

The whole range of materials, components, workpieces.
Fuel and energy costs used in the aspect of production needs.
Workers' earnings with all deductions and so on.

Attention . If we consider the amount of changing expenses relative to one piece of product, then the production volume cannot influence this parameter. In this aspect, the value is conditionally constant.

Knowing the amount of expenses, the cost of goods sold, sales income and, of course, a special formula, it is easy to calculate the break-even threshold (profitability point).

How to determine the break-even point: determination methods and calculation formula

The value in question can be calculated using two formulas. The result of the first will be the natural value (product in pieces), the result of the second will be the value expression.

1. Formula for calculating the point of profitability (BER) in units of output:

BER = FC / (P - AVC), Where

F.C.– the amount of fixed costs.
R– price per piece of the finished product (service provided or work performed).
AVC– the amount of variable costs required for a unit of goods.
BER– naturally expressed permissible volume of sales.

2. Formula for calculating the break-even threshold (BER), expressed by the amount of money

In this case, it is necessary to start by calculating a special indicator that reflects income of a marginal nature, that is, showing what the share of margin is in the income received.

How is the contribution margin (MR) determined?

MR = TR – VC, Where

TR– revenue indicator.
V.C.– the amount of variable costs.

P=TR/Q

Q– is the sales volume.

Thus, the contribution margin ratio (KMR) will be:

KMR = MR/P

The formula for calculating the break-even threshold (BER) looks like this:

BER = FC / KMR

Total ( BER) is equal to the amount of critical revenue. If it is less, losses begin.

Of course, illustrative examples will bring greater clarity to the understanding of the calculations of the point beyond which the company begins to work “in plus”.

How to calculate the break-even point for a manufacturing enterprise?

Enterprises typically engage in... Its price is approximately the same, which is not surprising, because this is a direct way to reduce costs. That is why in this case it is advisable to calculate the break-even threshold based on the natural expression.

For example, the cost of one manufactured product is 420 rubles.

The list of costs is given in the table:

Name of fixed expenses		The name of the variable costs required to produce a unit of finished product	Unit cost, in rubles
General plant type consumption	82 000	Materials	155
Depreciation type of deductions	110 000	Blanks	92
Salary of administrative and management staff	110 000	Workers' earnings	65
Communal payments	25 000		22
Total	327 000		334

Calculation of profitability point:

BER= 327,000 / (420-327) = 3,516 pieces

Consequently, the break-even of the enterprise is ensured by the production and sale of 3,516 pieces of finished products. If this volume is exceeded, the company makes a profit.

An example of calculating the break-even point in trading

Considering the specifics of the trade sector - the breadth of assortment and variety of prices - it is not advisable to calculate the break-even threshold in units of goods. Therefore, the result of calculations is always a monetary value. For clarity, let’s use the example of a children’s clothing store.

His expenses are in the table:

Name of fixed expenses	Amount of fixed expenses, in rubles	Name of variable costs	Amount of variable costs, in rubles
Payment for rent of premises	115 000	Purchase price of one unit (average)	1 100
Salespersons' salaries	135 000	Planned sales volume	650 units
The amount of deductions from accrued wages (approximately 30%)	45 000
Communal payments	20 000
Advertising expenses	30 000
Total	345 000		715 000

This means that 345,000 rubles are constantly spent, the value of the handle is 2,800,000 rubles, with variable expenses of 715,000 rubles.

The amount of marginal income is equal to:

M.R.= 2,800,000 – 715,000 = 2,085,000 rubles

KMR = 2 085 000 / 2 800 000 = 0,75

Now you can start calculating the break-even threshold:

BER= 345,000 / 0.75 = 460,000 rubles

What does the calculation result say? To operate with zero profit, a store needs to sell clothes worth 460,000 rubles. Above this threshold, profitable trading begins.

The indicator of marginal income is interesting. It characterizes financial strength, or rather its reserve. In this version it is 2,085,000 rubles. It is by this figure that revenue reduction is allowed. A larger decline in revenue would drag the store into the unprofitable zone.

How to plot a break-even point?

Using the graphical method, a forecast is made of the company's main performance indicators under constant market conditions.

The graph shows the dependence of the goods sold on the proceeds and expenses:

X axis reflects information related to sales volumes in units.
Y axis demonstrates revenue and expenses in rubles.

When constructing a graph in the XY system, 4 lines are constructed:

Direct fixed costs runs parallel to the Abscissa axis - they are unchanged.
Variable cost line starts at the zero point and tends upward.
Total expense line runs parallel to variable costs, but originates at a point on the Y axis, that is, its beginning corresponds to the beginning of fixed costs.
Revenue line in the analyzed period assumes constant prices in a given period of time and uniform output.

Many companies use various analytical techniques, including those borrowed from abroad, to manage their income and costs. Among them, the simplest and most common is CVP analysis, which involves estimating the break-even point. By learning to make simple calculations, you can get an effective financial management system with elements of strategic planning.

Break even

Break-even point (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). It is measured in physical or monetary terms. It helps determine how many products need to be sold (services performed) to cover expenses. At the break-even point, revenues cover expenses. If it is exceeded, the company makes a profit; if it is not achieved, the company incurs losses.

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It represents a mathematical and graphical assessment of the relationship between three main components:

WITH– enterprise costs.
Q– quantity of products sold (in natural units).
Pr- profit.

All calculations are made with the aim of:

determine the physical and cost volume of sales, which will allow not only to compensate, but also to obtain the desired profit;
predict what profit can be obtained if the sales volume is known;
assess how profit will react to changes in price, costs or quantity of goods;
establish the optimal structure for this type of activity.

Where to start?

You must first decide which costs are fixed and which are variable, since they are mandatory components for the calculation.

The main condition for conducting CVP analysis is the division of all enterprise costs into two groups:

Variables(VC – Variable Cost) – costs, the volume of which changes in proportion to the increase (decrease) in production volume. That is, the more products you need to produce, the more you will have to spend, and vice versa. These usually include raw materials and supplies, semi-finished products, workers’ wages, fuel and electricity for technological purposes, packaging, etc.

The average variables are calculated separately ( AVWITH– Average Variable Cost), which show the size of VC per unit of production. Over time, their size does not change.

Permanent(FC - Fixed Cost) - costs, the change of which does not directly depend on the growth and decline in production volumes. These are, as a rule, the costs of maintaining administrative personnel, utility bills, communications, depreciation, etc. All these costs will occur even if the company cannot produce or sell anything. In this sense, they are conditionally constant.

Calculation formula

Break-even point is calculated in two dimensions:

In natural units:

VERNAT = FC / (P – AVC) = FC x Q / (TP – VC)

Where P is the price.

This determines the minimum acceptable sales volume in physical units of weight, length, volume or quantity.

In monetary units:

VERDEN = VERNAT x P

This determines the amount of revenue that will cover and make zero profit.

There is another method for calculating BER in monetary terms. But for this you need to use the indicator marginal income/profit (MR– Marginal Profit). It characterizes the part of the proceeds that will remain after financing variable costs and will be subsequently used to cover fixed costs and make a profit.

MP = TP – VC = FC + Pr

Average contribution margin will be calculated like this:

AMP = MP / Q = P – AVC

Marginal income ratio – This is the share of marginal income in the company's revenue. It shows how many kopecks of profit each additional ruble of revenue will bring.

K MP = MP / TP = AMP / P

Then to calculate the break-even point in monetary terms you can use the formula:

BEP = FC / KMP

The need for calculation

Break-even analysis – an important source of information for making decisions regarding business activity:

Should you invest in a specific project? For an entrepreneur, it is important not to “burn out” and it is important to know from what point the risk of financial failure will decrease. Based on the BER indicator, you can calculate the volume of sales, starting from which a new business will begin to make a profit, and investments will pay off.
What does the change in BELIEVES over time indicate? Expansion and contraction of activities directly affects the level of the critical point. The larger the size of the company, the higher its VER. But if the volume of activity has not changed, and the profitability threshold has become higher, this may signal problems. Something goes wrong if you have to sell more than before to make a profit.
Change price or sales volume? The BEP indicator contains a linear relationship between the price and quantity of goods intended for sale. On this basis, a strategic decision is made: if the selling price changes, how much should the sales volume be changed in order not to lose profit? And vice versa, how should the pricing policy be adjusted in the face of changes in the scale of sales?
How much can you afford to reduce revenue and still break even? The BER indicator is used when calculating the financial safety margin ( MFS– Margin of financial safety), which directly answers the question posed.

MFS = (TP – BEP) / TP x 100

MFS is determined as a percentage and allows you to compare different enterprises with each other. This coefficient is a kind of airbag. The higher it is, the better the company’s financial position is protected from any negative changes in the market.

Calculation examples

Although all enterprises use the same formulas for calculating BEP, the industry and type of activity influence the composition of costs, as well as their division into VC and FC.

For the store

Trading enterprises have a wide range of products with different price characteristics, so it is physically impossible to calculate the critical volume for each type of product. It is more expedient to calculate the VER for the outlet as a whole. To do this, we conditionally divide costs into variable and fixed.

By selling goods worth more than 1,012,500 rubles, the store will make a profit, and revenue below this level will plunge the outlet into losses. In this state of affairs, each additional ruble of revenue brings 40 kopecks of profit.

For enterprise

Manufacturing enterprises that specialize in the production of homogeneous products can calculate the critical point in both natural and monetary units.

Indicator Amount

Sales volume, pcs. 10,000

Sales price, rub. 150

Revenues from sales(p.1 x p.2) 1 500 000

Variables: 1 000 000

Raw materials and supplies 800,000

Salary of main workers with deductions 100,000

Electricity for technological purposes 40,000

General production expenses 60,000

Average variable costs (p. 4 / p. 1) 100

Marginal income(p.3 – p.4) 500 000

Fixed costs: 187 000

Factory overhead costs 62,000

Depreciation and repair of equipment 25,000

Utility bills (gas, electricity, water, electricity) 30,000

Salary of management and maintenance personnel with deductions 70 00

Profit(p.6 – p.7) 313 000

Break-even point in natural units(p. 7 / (p. 5 – p. 2)) 3 740

Break-even point in monetary units(p. 9 x p. 2) 561 000

At this enterprise, making a profit is possible already from a sales volume of 3,740 units or 561,000 rubles.

Certain assumptions when calculating

The calculation is simple and universal, but has its own conditional limitations (assumptions):

the selling price does not increase with an increase in the volume of units sold;
costs remain unchanged;
Products are sold completely (without any leftovers in the warehouse or in production) in one operating cycle;
VER calculation is made for one type of product for which the cost can be determined.

Limitations make the BER indicator not an absolute, but a conditional indicator and causes criticism from many analysts.

VER schedule

An important method of analysis is visual, which involves constructing a break-even chart.

Since BER is the level of activity at which income is equal to costs, the break-even point on the graph is formed at the intersection of two graphs: income (TR) and total costs (TC). The projection on the Q axis will show the size of BER in physical terms, and on the TP axis - BEP in monetary terms.

Since there are fixed costs even with zero sales volume, the TC schedule starts from a point equal to the size of FC.

Sequence of plotting:

An income graph is being built: the first point is at 0, and the second is at the intersection of sales volume in physical units and the amount of revenue.
A cost schedule is constructed: the first point on the vertical axis is at the level of fixed costs, and the second at the intersection of sales volume in physical units and total (fixed and variable) costs.
At the intersection of the graphs, VER is marked, as well as the profit and loss area.

CVP analysis is a methodology that is easy to understand and apply, which will enable entrepreneurs to control current costs, plan prices and volume of activities that ensure profit. Only by understanding the relationship between the main indicators can you learn to manage them.

As you know, every company operates to make a profit. Only by achieving this goal can the company ensure the stability of its work and the basis for expansion. The profit of the enterprise is expressed in the form of dividends on invested funds. The company's profitability attracts investors and helps increase its capital. One of the most important aspects of activity is the concept of break-even. It is considered the first step towards obtaining accounting and then economic profit. Let us next consider what the financial break-even point is.

Theoretical aspect

In economic science, determining the break-even point is understood as the normal state of a company in a modern competitive market, which is characterized by long-term equilibrium. In this case, economic revenue is taken into account - income at which the company's costs include the average market rate of return on invested funds. The company's normal income is also taken into account. Under these assumptions, the definition of the break-even point is as follows:

This is the volume of sales of a product at which the profit from sales fully covers the costs of its production, including the average market interest on own assets and business (normal) income.

Operational efficiency

If a company makes an accounting profit (the balance of its sales income and cash costs for producing goods is positive), the break-even point may not be reached in economic terms. For example, revenue may be lower than the average market interest rate on capital. It follows from this that there are other, more profitable options for using your own assets that would allow you to receive more income. The break-even point of an enterprise, therefore, acts as a criterion for assessing the effectiveness of business activities. A company that does not achieve it operates ineffectively in the current market conditions. But this fact, of course, cannot be considered a clear reason for the company to go out of business. To resolve the issue of terminating the company's activities, it is necessary to study the cost structure in detail.

Income maximization

It is necessary for the optimal functioning of the company. The process of maximization is the calculation of the break-even point in economic terms. When exploring this procedure, the following concepts are used:

Marginal income. It represents the amount by which the company's total profit changes when the output of a product increases by 1 unit.
Marginal costs. They express the amount by which total costs change when production volume increases by 1.
Total average cost is the sum of fixed, variable and sunk costs per unit of output.

From a certain point (when a certain volume of product output is established), the variable cost curve will be increasing, and the marginal revenue curve, accordingly, decreasing. To maximize profit, the fundamental ratio is between profit and costs when the volume of production increases by 1. It is clear that when marginal costs are less than income, as the quantity of goods increases, profit becomes greater. If costs are greater than revenue, then an increase in income will be facilitated by a decrease in output. Thus, it is possible to formulate a criterion under which profit will be maximum: it is achieved when the marginal indicators of revenue and costs are equal.

Break-even point: how to calculate?

There are several points that need to be paid special attention to. First of all, the problem is to establish the critical volume of goods at which the break-even point of production is reached. There are three approaches to solving this problem:

The equation.
Establishing marginal income.
Graphic image.

Also of particular importance will be the analysis of the break-even point (forecast) to changes in assumptions.

The equation

This break-even point method involves drawing up the following diagram:

Income - Variable expenses - Fixed costs = Net profit.

The last indicator can be denoted as PR. P is the selling price of a unit of goods produced, x is the volume of manufactured and sold products for the period, a is fixed and b is variable costs. Using these notations, we can create the following equation:

P = P*x - (a + b*x), or P = (P - b)*x - a.

The last equality indicates that all factors are divided into criteria that depend and do not depend on the volume of sales. In the process of determining the parameters, costs were divided into products sold and products released. This difference is considered the most significant in two approaches to management accounting: Direct costing and Absorption costing. In the latter case, costing is performed with the distribution of all costs between the goods sold and its balance. In other words, fixed costs are inventory intensive. When using the second method, fixed costs are allocated entirely to sales. Using the first equation, you can easily calculate the break-even point. To do this, you need to carry out simple mathematical transformations. From the condition P = 0, the volume of product output is established at which the company reaches the break-even point. The formula looks like this:

xo = (P + a) : (P - c) = a: (P - c).

Example

Consider a hypothetical company that produces electronic components. The cost of one unit of goods is 5 thousand dollars, variable costs (price of components, staff salaries, etc.) for 1 product are 4 thousand dollars, fixed costs are 20 thousand dollars. Let’s find the maximum production volume at which the company's break-even point. The formula will be like this:

xo = 20,000: (5000 - 4000) = 20 (product units).

The time during which the found quantity must be produced and sold will correspond to the period during which the amount of fixed costs will be found. Using the equation given in the previous paragraph, you can determine the amount of output that should be achieved to obtain a specific amount of profit at which the break-even point will be reached. How to calculate a company's income, for example, of 10 thousand dollars? To do this you need to issue:

x = (10,000 + 20,000) : (5000 - 4000) = 30 (units).

Marginal profit

This method is considered a modified version of the previous method. Marginal profit will be considered the income that the company receives when producing one product. Using an example, let's find it:

5000 - 4000 = 1000 per unit.

For a more accurate representation of the area of relevance, the assumptions that are used in constructing the described models should be listed.

Total expenses and revenue

The behavior of these indicators is linear within the domain of relevance and is strictly defined. This provision is true only when the change in output volume is small in comparison with the market capacity of a given product. Otherwise, the linearity of the relationship between output indicators and revenue will be disrupted.

Expenses

All costs can be divided into fixed and variable. The former are independent of the volume of output within the area of relevance. This assumption greatly simplifies the analysis. However, at the same time, it significantly limits the scope of relevance. Indeed, under this assumption, the volume is limited by the fixed assets available. However, it is impossible to increase them or rent them. It seems more realistic to assume that the change in fixed costs occurs in steps. But it significantly complicates the analysis, since the graph of total costs becomes discontinuous. Variable costs remain independent of output within the scope of relevance. In fact, their value is presented as a certain function of production volume, since there is an effect of a decrease in the maximum productivity of factors. In this regard, under the assumption that fixed costs are independent of output volume, variable costs increase with its growth.

Sales price

The assumption that it also remains unchanged is considered the most vulnerable point. This is due to the fact that the selling price depends not only directly on the work of the company, but also on the structure of market demand, the activities of competitors, and so on. The company's expenses on promoting its products, forming its distribution network, and much more also have a significant impact on the change in the indicator. Here, therefore, it is necessary to examine the many factors influencing the subsequent assessment. But such an analysis is quite complex and requires an individual approach in a particular situation.

Other assumptions

The assumption that the services and materials used in production remain unchanged is also highly controversial. However, it makes the assessment much easier. The following assumptions also apply:

Performance remains unchanged.
There are no changes in the structure. It makes sense to dwell on this assumption in more detail. Above we considered the release of one unit of goods. Accordingly, problems of allocating costs for different products, setting their prices, or determining the effectiveness of one or another production structure did not arise. In conditions of variability, assessment requires the use of additional criteria. The sales break-even point can only be accurately determined for a specific product release structure.
Only the quantity of goods produced has a relevant impact on costs. This assumption is of particular importance for the analysis. In this case, one should abstract from the influence of external factors and include in fixed costs all costs that do not depend on the quantity of production.
Production and sales volumes are equal or changes in beginning and ending inventories are insignificant.

Sensitivity rating

The above assumptions have little applicability in the real world. However, they can be adapted to reality through sensitivity analysis. This method involves using the “what will happen if...” technique. Within its framework, you can get an answer to the question of how the result will change if the initially designed assumptions are not achieved or the situation with them changes. The tool used in this analysis is the margin of safety. It represents the amount of revenue that is at a level lower than the break-even point. This amount shows the limit to which income can decrease so that there is no minus. Once the underlying assumptions regarding changes in underlying assumptions have been made, the resulting adjustments to the margin of safety and contribution margin must be identified. In management accounting, cost behavior is continuously assessed and the break-even point is periodically identified. At its core, sensitivity creates an elasticity of margin relative to tolerances.

Estimates of costs and prices for future periods

The operating company takes these indicators from its own statistics and the behavior of product costs, taking into account expected changes in the economy. In particular, seasonal fluctuations, the activities of competitors, and the emergence of substitute products (especially in high-tech markets) should be taken into account. New companies cannot rely on their experience because it is missing. For them, therefore, calculations by analogy with already operating firms in this industry will be relevant. Along with this, you can use various reference information. The most difficult thing is to create a company that will work in a non-existent sector. In this case, careful costing and marketing research should be carried out. For such firms, it is advisable to use cost-plus pricing. The price in this case is obtained by adding a fixed margin to the total costs. In this option, the size of the marginal income is known, therefore, the break-even point is easily found.

Conclusion

Considering methods for establishing the break-even point, it is thus assumed that the cost of producing a unit of goods and the selling price act as external factors. In other words, by the time the desired indicator is found, these values are known and cannot be changed. Establishing these key parameters and their in-depth analysis allows, in turn, to study the company’s break-even planning.

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.

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

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.

A program for optimizing the work and financial reporting of a Business.Ru store will allow you to maintain full-fledged financial, warehouse and trade records. At any time convenient for you, you can receive reports on expenses, costs per unit of goods, number of units, selling price and much more.

Direct costing

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

(t.r.dec. )	R lane (t.r.dec. )	R post (t.r.dec. )

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.

	(t.r.ub.)		TOR. lane