If you are someone who is thinking to start new business or start-up or you are an accountant or an student then this break even point calculator will certainly going to help you in many ways. You can use the break even point calculator given below to find out 2 most important things:
- No. of units of a product you need to sell in order to be profitable
- How much revenue you need to generate to get profitable
So, basically the BEP calculator given below helps you in determining when a project will be profitable by equating its total revenues with its total expenses.
You can use the calculator directly if you now the fixed cost, sales price per unit and variable cost per unit.
However, if you are not aware of these things than do not worry, you can read everything you ever need to know about break even point analysis with formula and examples explained in easy way below.
What Is Break Even Point Analysis?
In simple words break even point refers to a point at which total cost and total revenue are equal, in other words it is a point where a company revenues equal its cost.
The break-even point help a company to find when it, or one of its products, will start to get profitable. So when a company’s revenue is below the break-even point, then the company is operating at a loss. Whereas If it’s revenue is above BEP, then it’s operating at a profit.
In business people calculate break-even point to find the number of product units they must sell to cover its costs.
Now that you know about the break even point analysis and why one do that, you should also be knowing the different components involved to calculate the BEP.
1.Fixed Cost: This are the cost which do not change and remains fixed, as an example rent of the office, building, machinery, salary, insurance premiums etc. Even if there is some change it is slightly and will be constant most of the time.
2.Sales Price Per Unit: This is the retail price of the the product per unit you would be selling in the market to the consumers.
3.Variable Costs per Unit: Variable costs are calculated on per unit basis, this are expenses which involves labor wages, sales commission, delivery charges, material used to create that product etc. Variable cost are the highest expenses for a company and its keep on fluctuating depending upon the changes in production of units, so if you produce or sell more units, the variable cost will increase and vice-versa.
What Is Break Even Point Formula?
To calculate the breakeven point the formula is very simple:
Fixed Costs ÷ (sales Price – Variable Costs) = Break even Point in Units
Another point to know when calculating the breakeven point is contribution margin.
Contribution Margin is the difference between the price of a product and what it costs to make that product.
For example, if a mobile selling price is Rs.100 and its variable costs are Rs.10 to make the mobile, Rs.90 is the contribution margin per unit.
What Is Contribution margin formula?
To determine the ratio:
(Sale price per unit – Variable costs per unit)/Sale price per unit
In terms of computing the amount:
Contribution Margin = Net Sales Revenue – Variable Costs
OR
Contribution Margin = Fixed Costs + Net Income
The contribution margin shows how much of the company’s revenues will be contributing towards covering the fixed costs. It can be expressed on per unit basis or for the total amount. It can also be expressed as a percentage of net sales.
Break Even Point Example In Units:
Let us assume you are the accountant in charge of Company named ABC limited, which sells Toys. You calculated
that the fixed costs of your company ABC limited is Rs.100,000 which we already know consist of property taxes, rent, salaries, etc.
The variable cost associated with producing one toy is Rs.25 per unit. The toy is sold at a retail sales price of Rs.120.
Now, to calculate the break even point for your company in order to find how many units of toys you need to sell to be profitable will use the equation:
BEP = Fixed Costs ÷ (Sales price per unit – Variable costs per unit)
Break even point(units) = Rs.100,000 / (Rs.120 – Rs.25)
= 1052
Therefore, given the fixed costs, variable costs, and selling price of the toys, Company ABC limited would need to sell 1052 units of toys to break even, in other words to be profitable.
Break Even Point Example In Rupees:
Now that you know the no. of units you need to sell to be profitable, you can convert that in to your currency or money form. To do that you just need to multiply the units* sales price per unit or you can also do this another way if you know the contribution margin.
we know the formula for contribution margin which is:
Contribution Margin =(Sales price per unit – Variable costs per unit)/ sales price per unit
=(120-25)/125
=0.79166
sales in money for breakeven= Fixed price/Contribution Margin
Rs.100,000/.79166=Rs.1,26,315
This means company ABC limited needs to sell Rs.1,26,315 worth of Toys in that month, to break even. Anything after that amount, will be profit for the company.
To confirm this amount you can take the 1052 units from the first calculation, and multiply that by the Rs.120 sales price, to get the Rs.1,26,315 amount.
Note: I have done the calculation in points to get the correct figure.
Checkout the below image I have taken by calculating using moneycontain break even point calculator with the same figure mentioned in above ABC limited example.
How Accurate Is Moneycontain Break Even Point Calculator?
The benefit of having a calculator for any type of calculation helps one to avoid the miscalculation which usually happens while doing it manually.
Sorry but i am not challenging anyone and neither I am a math expert, but it is tool which helps to provide the result instantaneously instead of taking your time to solve the equation.
Having said that while making any calculator on moneycontain website we make sure that you get the correct and accurate results and thus for a reference i have attached a snapshot from a leading website and company named ZOHO.com, the results are similar with above example as calculation.
So rest assured moneycontain BEP calculator is as accurate as any other calculator available on any other prominent website, moreover you can do the manual mathematical calculation as well to find out the accuracy.
Conclusion:
A break even point analysis can help you in many ways, whether you are just thinking of starting out a business or you already have a business or you are trying to reduce the fixed cost and variable cost of any product in your company.
The break even point calculator becomes handy in all such cases, it helps you to figure out where you need to cut down the expenses, how you can be ahead of your competitors like reducing the product sales price or adapting to the tough situation your company might be going through during economic slowdown or recession.
I hope you have understood the basics concepts related to break-even point analysis and it might help you.
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