The breakeven point is the minimum amount of revenue that is required to cover costs. The break-even point can also be considered as the minimum volume of manufactured products that must be sold in order for the company to cover its costs.
It is necessary
- - variable costs per unit of production (VC);
- - fixed costs (TFC);
- - total costs (TC);
- - unit price (P);
- - the volume of the issue (Q);
- - the amount of revenue (TR).
Instructions
Step 1
The break-even point can be found in volume and value terms. To do this, you need to understand the relationship of indicators. A break-even point is a revenue at which the company no longer has losses, but still does not have a profit. The following value corresponds to this state: TC = TR. From the presented equality, it is necessary to highlight the indicator of sales volume (Q).
Step 2
Total costs are the sum of fixed and variable costs:
TC = TFC + TVC = TFC + VC * Q.
The revenue indicator is calculated as follows:
TR = P * Q.
Transforming the equality, we get: TFC + VC * Q. = P * Q, then Q = TFC / (P-VC).
The Q value is the sales volume at which all costs will pay off.
Step 3
To plot a point on a graph, it is convenient to use Excel. To build a graph, we need indicators for several periods, for example, for several months. We open a new sheet and draw up a table with the required indicators. It should be remembered that fixed costs are fixed and unaffected by increased production. Revenue and variable costs will depend on the volume change.
Step 4
The graph will be built on a new sheet. To build it, you need to select the required area with data and select the type of graph. The abscissa will reflect the volume of production, and the ordinate will show revenue and costs.
Step 5
The chart will display four lines. The revenue line reflects the volume of sales in volume and value terms. The variable cost line shows how variable costs change when volume changes. The fixed cost line will run parallel to the abscissa axis. The line of total costs shows how the total costs increase with an increase in the volume of products produced. The breakeven point will be at the intersection of the revenue and total cost lines.
