|
|
How to calculate your breakeven point?
How to calculate your break-even point? Break-even is a dollar incoming to a business and will be discussed from the USA standpoint. There are some key elements in every calculation.
Break even is the number of units that must be sold in order to produce a profit of zero dollars but all costs will be paid.
Break even = fixed costs divided by (unit cost minus variable cost.) Simply said, break-even point is when your product stops costing you money to produce and sell, so you begin to make a profit. Fixed costs are expenses a business must pay if no sales are made.
This is a very basic mathematical statement but will cover the bases.
-
- Fixed costs are the production costs for a product. Rent, utilities, phone bill, insurance Premiums, wages, advertising etc
- - Unit cost is the cost charged the customer for one product
- - Variable cost is the cost to produce one more after break-even
- - Total cost is the sum of fixed production costs
|
|
In order to find the fixed and variable costs, use your Profit and Loss statement. You will need to summarize costs by both heading.
Many business people use Quicken Books, which will generate all these bottom line figures. Items like rent, utilities, and utilities and salaries are typical of fixed.
Sales commissions, cost of products or services you sell, freight and delivery, are typical of variable.
This is the url for an Internet site that gives you a calculator:
https://connection.cwru.edu/mbac424/breakeven/BreakEven.html
To use this calculator, you need a browser with JAVA.
You will need the bottom line figures as explained above.
If you want some help making some management decisions, the break-even figure will often give it.
Breakeven analysis allows the businessman or woman to determine how much money has to be earned to pay the bills. It is a simple way to find how much income you business needs to start making a profit.
You can use this break-even point to decide what the sales price of your product needs to be. Also this helps you analyze your business to present its strong points to a prospective buyer.
A business profit margin percentage is the difference between sales and the variable costs. This is represented by percent of sales.
The break-even point is when the revenue or income produced is exactly equal to expenses.
Some recommended steps to calculate the break-even point include:
A Compute your Variable Cost
How much did the food cost?
What was the price of napkins, plates, and cutlery?
List total payroll costs include your share of taxes and contributions.
Total Variable Cost = $xxxxx.xx
B. Compute Fixed Costs
Total of Salaries
Cost of Equipment
Cost of Overhead (rent, utilities, insurance, loan payments)
Total Fixed Cost = $xxxx.xx
Total Revenue
Income from sales
Income from rentals
Income from loans receivable
Income from commissions etc
Total Revenue = $xxxxx.xx
Calculate Break-even Point
The breakeven point is the point at which the expenses and the total revenue are exactly equal. This can be expressed as a dollar amount or a percentage. Most managers round off the break-even point to the next highest dollar.
In summary, the Fixed Cost is the sum of all costs required to produce the first unit of your product. A Variable Cost is expenses that vary with the production of additional units or products.
Expected Unit Sales are the number of sales or projection of how many sales can realistically be made in a given time. This could be a year or two years or less. The unit price is the amount of money you charge your customers when you sell the one of your units.
You reach the Total Variable Cost when you multiply the sales you expect to make with the variable unit cost. Total cost is the sum of the fixed unit cost and the total variable cost. Total Revenue is the bottom line of all the sales made.
This is how to calculate your break-even point. At first it may appear somewhat confusing, however it really is simpler than it would appear. If you have hired out the services of a professional accountant, they can help you to complete this information.
Privacy Policy, Terms of Use