The profitability threshold, or break-even point, is revenue in such an amount that full coverage of all costs is ensured with a profit of zero. At the break-even point, revenue may fluctuate, resulting in a profit or loss.
Instructions
Step 1
There are two ways to determine the profitability threshold: analytical and graphical.
With the analytical method for calculating this indicator, the following formula should be adhered to:
Profitability threshold = Zpost / Coefficient of total margin, Where Zpost is a fixed cost, Coef shaft. Margin is the gross margin ratio.
Shaft. Margin = B - Zper, Where B is the revenue, Zper - variable costs.
Gross margin ratio = Gross margin / V.
Step 2
Of all the above formulas, you can get one complete one to find the profitability threshold:
Profitability threshold = Zpost * B / (B-Zper).
Step 3
Using the graph, the profitability threshold is found as follows. On the OY-axis, note the fixed costs. Draw a line of fixed costs parallel to the OX axis.
Step 4
The OX-axis is the sales volume. Select any point on the OX axis. Calculate the amount of fixed and variable costs for the selected sales volume. Plot a straight line satisfying the set value.
Step 5
Again, mark for yourself any point of the sales volume on the OX axis. For this value, find the amount of revenue, also build a straight line based on these values.
Step 6
On the graph, the threshold of profitability (break-even point) will be the point at the intersection of the straight lines constructed in accordance with paragraphs 4 and 5 of this instruction. The profitability threshold shows at what value of revenue and total costs the enterprise has no profit and equals zero.
