They need to multiply the break-even point with the sale price per unit to do so. This can further help companies in determining the total sales achieved by the company then. This means a company will have to sell at least 2500 units of the product to overcome these fixed and variable costs incurred for production. So, from the above break-even analysis, it is evident that BEP (break-even point) for ABC enterprises stands at 2500. The company sold these goods with a sale price per unit of Rs.50.īreak-even point = 50,000/ (50-30) = 2500 units Let us understand this equation by taking a break even analysis example mentioned as follows.Ī factory ABC Enterprises produces a particular kind of good wherein the total fixed costs stands at Rs.50,000 and variable cost to produce a good is Rs.30. Variable cost is the cost to produce one unit of product. For example, rent, loans, insurance premiums, etc. To understand this further, consider this formula.īreak-even point = Fixed Cost / (Price per cost - Variable cost) = Fixed Cost / Gross Profit Marginįixed cost refers to the cost incurred in a business unit, which doesn’t depend upon the volume of production. Since this calculation reveals such vital information of a business, it is a necessity to learn and calculate break-even points accurately. Reaching this point indicates that a business has overcome all the expenses and no more in a state of loss. In a business scenario, the break-even point is a perimeter at which the total expenses of the enterprise equals the total revenue generated. Reaching this break-even point means that a company is no more in a state of loss. It helps businesses calculate the volume of products that need to be sold so that a company overcomes all the initial cost of investment. Break-even analysis is an essential economic tool that helps to determine the point beyond which a company earns a profit.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |