In business, a lot depends on luck, but a lot is subject to various economic laws. While the former is almost impossible to control, the latter is calculable. So, you can calculate the amount of production that is needed to eliminate costs and expenses.
It is necessary
Calculator
Instructions
Step 1
Calculate the fixed costs of the enterprise. To do this, add up all the costs that arise in the process of doing business. A feature of this type of costs is that they do not change their value with a change in the volume of products. For example, they can be taxes, depreciation deductions, payment for the services of service personnel, etc.
Step 2
Determine the unit price of your product. At a minimum, it should include the funds spent on the source material, on the work on the manufacture of the product, as well as on the remuneration of the employee of the enterprise.
Step 3
Calculate the amount of variable costs. Unlike permanent ones, they will directly depend on the amount of products produced. In order to find the critical volume of production or the break-even point, you should get an indicator of variable costs per unit of goods.
Step 4
Subtract from the price of the product the resulting value of variable costs per product. Then divide the amount of fixed costs by the resulting number. The result is the amount of products that should be produced so that the enterprise is not unprofitable.
Step 5
Calculate the financial safety margin. In other words, determine how far your real business performance is from the break-even point. This will allow you to have information about what changes in the volume of production you can tolerate, and which are already risky to go for.
Step 6
Subtract the previously calculated critical volume from the actual output. Divide the resulting value by the actual output and multiply the total by 100%. The resulting indicator will be the criterion, based on which, you can make a decision to reduce the output of manufactured products.
