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Suggest You - How to Calculate Your Break-Even Point and How to Use It
"I think Ed has a point."We were in the Boardroom of a $1.5 billion consumer goods manufacturer when the CEO made that statement. Of course he was responding to what I had just said."If you gentlemen don't know why you’re doing this project, how on earth do you expect the rest of the company to get behind it?"You see this outfit was way behind on their promises. The same Executive Team that sat before me that day
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes
What a shame! Potentially productive public relations people resting on their oars in a large organization. Just kind of tinkering with tactics and leaving target audience perceptions (and behaviors) to pretty much do their own thing.Big pain on the way!Unattended, key public perceptions can morph into painful behaviors that hurt the organization.Just plain shouldn’t happen.In military-speak, all it takes
The Break-Even point in sales volume is defined as:
“That point in sales volume, or revenue, where direct costs have been recovered, fixed overhead expenses have been absorbed and where profit begins”.
We can relate Break-Even Point to the information in our financial statements, particularly the Income Statement. The Income Statement should be organized into the following sections:
1. Revenue
The sum of all sales and other income net of returns and sales commissions.
2. Cost of Sales (Cost of Goods Sold)
The cost of purchases that are resold (merchandise) and/or raw materials plus the costs of labor to manufacture the product or convert it or install it or deliver it or construct it on site. These costs are also called direct or variable costs.
3. General & Administrative Costs (Overhead)
These are all the costs not directly, or easily, related to sales volume such as Advertising, Bank Charges, Computer Expenses, Insurance, Office Wages & Salaries, Officer’s Compensation, Telephone, Utilities, Depreciation, Interest, Taxes etc. These costs are also called indirect or fixed costs.
4. 1 minus 2 minus 3 = PROFIT.
Note: If your Income Statement is not organized in this fashion (called managerial accounting format), you need to have a session with your accountant and demand it be put into this format so you can manage the business better.
Once you have your financial statements and data in the right format, you can easily calculate Break-Even using the following formula as:
Break-Even Point = FC/(1-VC/S)
Where: FC = Fixed Costs
VC = Variable Costs
S = Sales
For illustrative purposes, let’s look at an example company, Acme Specialties that has the following data from its Income Statement:
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,000
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1 - .71 = .29
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calculated for:
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes
It's important for a salesman to have mental clarity and a healthy body to perform at the best of his, or her abilities. Our mind and body feed off each other. They go hand and hand. One affects the other…like a seesaw.If you have a body complaint it will constantly be on your mind. It may keep you from getting the proper sleep and rest. Nagging at you. If you have some type of mental disturbance it will be refl
3. General & Administrative Costs (Overhead)
These are all the costs not directly, or easily, related to sales volume such as Advertising, Bank Charges, Computer Expenses, Insurance, Office Wages & Salaries, Officer’s Compensation, Telephone, Utilities, Depreciation, Interest, Taxes etc. These costs are also called indirect or fixed costs.
4. 1 minus 2 minus 3 = PROFIT.
Note: If your Income Statement is not organized in this fashion (called managerial accounting format), you need to have a session with your accountant and demand it be put into this format so you can manage the business better.
Once you have your financial statements and data in the right format, you can easily calculate Break-Even using the following formula as:
Break-Even Point = FC/(1-VC/S)
Where: FC = Fixed Costs
VC = Variable Costs
S = Sales
For illustrative purposes, let’s look at an example company, Acme Specialties that has the following data from its Income Statement:
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,000
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1 - .71 = .29
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calculated for:
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes
First of all, anyone who is looking for the item with the best profit is on the right track. You may think that is obvious, but many sellers spin their wheels listing items that do not make a profit. Sure, they make some money, but they are not making a profit on their auctions. What you need to do is find items that make money after all the eBay fees, product costs, and shipping costs are paid.How can you be sure you have
4. 1 minus 2 minus 3 = PROFIT.
Note: If your Income Statement is not organized in this fashion (called managerial accounting format), you need to have a session with your accountant and demand it be put into this format so you can manage the business better.
Once you have your financial statements and data in the right format, you can easily calculate Break-Even using the following formula as:
Break-Even Point = FC/(1-VC/S)
Where: FC = Fixed Costs
VC = Variable Costs
S = Sales
For illustrative purposes, let’s look at an example company, Acme Specialties that has the following data from its Income Statement:
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,000
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1 - .71 = .29
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calculated for:
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes
Public relations is popular because it is very cost-effective and it works. If you send out one press release, for example, and it gets into print, it could generate more interest in your product or service.Businesses that want a leg up on their competition need to focus on boosting their public relations (PR) efforts. This keeps them from going under when the economy is weak, and gets them ahead of their competitors when sale
Sales = $1,000,000
Cost of Goods Sold = $710,000
General & Admin = $215,000
Acme’s Break-Even Point (during the period indicated by the income statement) is:
Break-Even Point = FC/(1-VC/S) and
VC/S = 710,000/1,000,000 = .71
1- VC/S = 1 - .71 = .29
FC/(1-VC/S)= 215,000/.29 = $741,379 = BEP
And the company operated at $1,000,000/741,379 = 135% of Break-Even during the period.
Break-Even can be calculated for:
A Company
A Division
A Location
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes
You have written your presentation and started to rehearse it in front of a sympathetic audience who can give you reliable feedback. At this stage you will be finding your own unique style of relating to an audience and presenting information.Be as natural as possible and certainly do not try to copy someone else, or you will come across as false and your audience may also start to doubt the accuracy of the content.Man
A Department
A Store
A Product
A Product Line
A Service
A Day
A Week
A Month
A Year (or any other time period)
This is assuming, of course, that fixed costs can be accurately or, at least, reasonably associated with the organizers above.
Using Break-Even in Modeling:
The Break-Even formula can be used as a model to estimate the effect of major decisions on the financial status of the business such as adding a new location, making a capital investment, dropping or adding a product line. Simply estimate the changes in fixed and variable costs (and sales) that result from the decision and plug them into the Break-Even formula for your company. This can also help you set goals for the new operation.
In fact, ANY significant contemplated change in your cost structure resulting from a proposed decision can be modeled to determine the effect on the company’s financial results before the decision is made. You will know what you face and are required to overcome ahead of time. You will be able to set goals based on financial facts rather than intuition only.
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