How to build a break-even schedule?
Such a term, as a breakeven point, shouldbe known not only to specialists involved in planning (financiers, economists), but also to each self-respecting businessman. After all, no matter how he, I must know the break-even point of my business, both planned and operational. In this article, we'll talk about how to build a break-even schedule, and what he shows us.
Break-even point is the minimum requiredvolume of production and sales of products (services) to cover all costs for its production. In simple words: this is the amount of sales necessary for your company to get zero results, that is, the profit will be zero at the same time. Accordingly, after the revenue exceeds the breakeven point in value terms, your business will start earning.
Breakeven point: graph
In order to graphically represent the breakeven point, we need the following data: fixed and variable costs of the organization, revenue.
- Fixed costs (FC) are costs that do not depend on the volume of production and sales (for example, office rent, salaries of management personnel, and others).
- Variable costs (VC) are costs,directly dependent on the volume of production and sales (the cost of raw materials and materials, the wages of production workers, commercial services, transportation costs, and so on).
- Total costs (TC) are the sum of fixed and variable costs.
- Revenue is the cash received by the enterprise from the production and sale of certain volumes of products for a specific period of time.
The break-even graph reflects the dependencethe volume of produced and sold products reflected in the x-axis, and the costs of its production and sale, as well as revenues received from the sale of this volume of products in monetary terms, reflected along the y-axis.
Drawing up a break-even schedule: steps
When all the necessary data for plotting are collected and calculated, we proceed to its construction:
- We begin the construction of the graph from the construction of the lineconstant costs: it is a straight line parallel to the x-axis, since the fixed costs do not depend on the volume of production and sales. And even if the enterprise does not produce a single unit of products (services), the fixed costs will be incurred by the enterprise in full.
- Then we put variable costs on the schedule, they directly depend on the volume of production and sales, that is, production volume grows, variable costs grow.
- After that, we build a direct total (total) cost, it will be parallel to the direct, reflecting the variable costs.
- The next step is to build a straight line that reflects revenue. At the same time, the price of a commodity is assumed unchanged for a certain period, while production and sales are uniform during this period.
Point of intersection of a straight line that reflects revenue anddirect reflecting the total costs and there will be a break-even point. The graph shows us the break-even point in the natural (the coordinates of the breakeven point along the x-axis) and the value expression (the y-axis coordinates).
Breakeven graph in Excel
The break-even schedule can be quickly built in Excel using a chart.
For this, it is necessary to make a table in whichincoming data will be included: constant, variable costs for the release of a certain volume of products and proceeds from its sale. And also the total costs will be calculated in the table.
Example: Table 1.
|The volume of the goods, pcs.||0||10||20||30||40||50||60||70||80||90|
|Constant costs (FC), rub.||1000||1000||1000||1000||1000||1000||1000||1000||1000||1000|
|Variable costs (VC), rubles.||0||500||1000||1500||2000||2500||3000||3500||4000||4500|
|Total costs, rub.||1000||1500||2000||2500||3000||3500||4000||4500||5000||5500|
And then, based on this table, make a diagram. To do this, go to the menu "Insert" - Chart - Graph - Next. In the appeared window in the "range" line, you must specify the table range, or select the table with incoming data on the Excel sheet when the mouse cursor is in the "range" line. You also need to tick the "rows in rows" item. In the "row" tab, delete the row "sales volume" (it coincides with the x axis).
Then you can make the necessary signatures of the axes andThe name of the diagram using the chart parameters. That's all, now you know how to build a break-even schedule. On it, you can easily determine the break-even point in terms of value and in kind (explained above).
In addition to this variant of building the break-even schedule, you can replace the volume of production in terms of goods by a percentage of the total production capacity of the enterprise.
Breakeven point: formula
In addition to the graphical method of finding a breakeven point, you can use it to find the following formulas:
- Break-even point in value terms, calculated by the formula:
BEP = TFC * P / (P-VC) (Formula 1), where
BEP is a break-even point,
TFC - fixed costs,
VC - variable costs for production of a unit of production,
P - Unit price,
(P-VC) is nothing more than a gross margin.
By this formula, you will find the minimum necessary amount of revenue, at which the profit will be zero.
- Break-even point in physical terms, is according to the formula:
BEP = TFC / (P-VC) (Formula 2)
Using this formula, you will findthe minimum required output, with the realization of which the revenue will be zero, and the production of each subsequent unit of production will bring profit.
In order that you do not have any questions, how to find break-even point with the help of formulas, let's consider their use by example.
In the production of 50 units of production, fixed costs amount to 1,000 rubles, sales proceeds of 4,000 rubles, variable costs of 2,000 rubles. Find a break-even point.
TFC = 1000 rubles.
Let's find the variable costs per unit of output:
VC = 2000/50 = 40 rubles / pcs.
Let's find the cost of a unit of production (price):
P = 4000/50 = 80 rubles / piece,
To find the breakeven point in value terms, we use the formula 1:
BER = 1000 * 80 / (80-40) = 2000 rubles.
To find the breakeven point in physical terms, we use the formula 2:
BER = 1000 / (80-40) = 25 pieces
Conclusion: To cover all costs for production and sales, sales of 25 items are necessary, sales revenue should be 2000 rubles.
Now you know what the breakeven point is, you can build a graph to find it, even if you forgot the formula.