How to build a break-even chart?
Such a term as the break-even point should be known not only to planners (financiers, economists), but to every self-respecting businessman. After all, whoever, no matter how he, should know the break-even point of his business, both planned and acting. In this article we will talk about how to build a break-even chart, and what it shows us.
The break-even point is the minimum required volume of production and sales of products (services) to cover all costs of its production. In simple words: this is the sales volume necessary for your enterprise to get zero results, that is, the profit will be equal to zero. Accordingly, after the revenue exceeds the break-even point in terms of value, your company will start earning money.
Break-even point: graph
In order to graphically present the break-even 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 salary of production workers, commercial services, transportation costs, and so on).
- Total costs (TC) is the sum of fixed and variable costs.
- Revenue is the funds received by the company from the production and sale of certain volumes of products for a specific period of time.
The break-even chart reflects the dependence of the volume of produced and sold products reflected on the x-axis, the cost of its production and sales, as well as revenues received from the sale of a given volume of products in monetary terms, reflected on the y-axis.
Break-even Plotting: Steps
When all the necessary data for the construction of the graph is collected and calculated, proceed to its construction:
- We start the construction of the graph with the construction of direct fixed costs: it represents a straight parallel to the x-axis, since 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 plot the variable costs on the chart, they are directly proportional to the volume of production and sales, that is, the volume of production grows and the variable costs grow.
- After that, we build a direct total (total) cost, it will be parallel to the straight line, reflecting variable costs.
- The next step is to build a direct, reflecting revenue. In this case, the price of goods is assumed to be unchanged for a certain period, and production and sales are uniform during this period.
The point of intersection of the line that reflects revenue and the line that reflects total costs will be the break-even point. The graph shows us the break-even point in natural (coordinates of the break-even point on the x-axis) and value terms (coordinates on the y-axis).
Excel break-even chart
The break-even graph can quickly be plotted in Excel using a chart (graph).
To do this, it is necessary to make a table in which the incoming data will be entered: fixed, variable costs for the production of a certain volume of products and revenue from its implementation.Also in the table will be calculated total costs.
Example: table 1.
|Volume of release of goods, pieces||0||10||20||30||40||50||60||70||80||90|
|Fixed costs (FC), rub.||1000||1000||1000||1000||1000||1000||1000||1000||1000||1000|
|Variable costs (VC), rub.||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 on the basis of this table to make a chart. To do this, we go in the menu "Insert" - Chart - Graph - Next. In the window that appears in the "range" line, you must specify the range of the table, or select the table with incoming data on the Excel sheet when the mouse cursor is in the "range" line. It is also necessary to put a tick in the item "rows in rows". In the "row" tab, delete the row "sales volume" (it coincides with the x axis).
Then you can make the necessary axis labels and the name of the chart using the chart parameters. That's it, now you know how to build a break-even chart. On it you can easily determine the break-even point in terms of value and in kind (explained above).
In addition to this option to build a break-even schedule, you can replace the volume of production in units of goods by a percentage of the total production capacity of the enterprise.
Break-even point: formula
In addition to the graphical method of finding the break-even point, you can use it tofinding the following formulas:
- The break-even point in value terms, calculated by the formula:
BEP = TFC * P / (P-VC) (formula 1), where
BEP - break-even point
TFC - fixed costs
VC - variable costs per unit of production,
P - Unit price,
(P-VC) - nothing more than gross margin.
According to this formula, you will find the minimum required amount of revenue at which the profit will be zero.
- The break-even point in natural terms, is found by the formula:
BEP = TFC / (P-VC) (Formula 2)
Using this formula, you will find the minimum required output, in the implementation of which the revenue will be zero, and the production of each subsequent unit of output will be profitable.
In order for you to leave no questions on how to find the break-even point using formulas, consider their use by example.
In the production of 50 units of production, fixed costs amount to 1,000 rubles, sales revenue is 4,000 rubles, variable costs are 2,000 rubles. Find the break-even point.
TFC = 1000 rub.
Find the variable costs per unit of output:
VC = 2000/50 = 40 rubles / pcs.
Find the unit cost of production (price):
P = 4000/50 = 80 rubles / pcs.,
To find the break-even point in terms of value, use the formula 1:
BEP = 1000 * 80 / (80-40) = 2000 rub.
To find the break-even point in natural terms, we use the formula 2:
BEP = 1000 / (80-40) = 25 pieces
Conclusion: To cover all the costs of production and sales, it is necessary to sell 25 products, sales revenue should be 2000 rubles.
Now you know what a break-even point is, you can build a schedule to find it, even if you forget the formula.