Break- even Point Essay
Any type of business currently has a well-planned main goal, which is increasing profitability in different strategies which enables them to achieve set goals. “Break- even point” Is one of the most important management tools. Easy to implement and It provides us with Important Information. This tool Is used In most businesses and Is extremely useful to Increases sales and production to desired goal. In other words, it’s an Important aspect of a company’s plan due to Its determination for Increased sales volume.
The break-even point is usually calculated from a monthly or annual basis. If your business does not reach its break- even point, then you should immediately reassess your business strategy and make any necessary changes. Understanding how much your business is spending is essential for recovering and succeeding instead of just surviving or Just being able to cover costs of the business. It’s necessary to calculate the break- even point in order to have well identified costs; otherwise it is extremely difficult to determine this point.
Formulas are important to apply to the break-even point in order to know the total fixed costs, but also the selling price of the product produced, the volume of production and the unit variable cost, the latter calculated by dividing the total variable cost between the number of units produced. Represented as follows; the basic break-even point equation Is B/ FCC Is the fixed costs in dollars and PVC Is the variable costs in dollars. Variations to this basic formula, which can be used when different combinations of the basic factors are known.
Such as; Where FCC is the total fixed costs in dollars, PVC is the total variable costs in dollars and S is the total sales in dollars. It is also possible to calculate your break-even point even when you do not know what your total gross profit to sales are (gross profit divided by sales). The gross profit is the amount remaining once the variable costs have been subtracted from sales. This equation is B/E=FCC/GM, and GM=GAP/S. FCC is the total fixed costs in dollars, GAP is the gross profit (or sales minus variable costs) and S Is the sales In total dollars.