Fixed Costs and Break-Even Point
Posted: Sun Jan 12, 2025 8:05 am
The point of equality occurs when income equals expenses. The point is that all the funds received by the company were spent on paying expenses, and the profit is zero.
This point shows the minimum sales volume required to avoid losses. Anything above this point brings in profit, and anything below it brings in losses.
For example, a company sells children's france phone data overalls at a price ranging from 6,000 to 9,000 rubles per unit of goods, the average bill is 7,500 rubles.
Monthly expenses
Utility costs and rental costs 150,000
Amount of employee remuneration 150,000
Advertising 40,000
Other 20,000
Total: 260,000 rubles
Cost per unit of goods
Purchase of products 3700
Transportation 300
Piecework wages 1000
Total: 5000 rubles
TBU per unit of goods = sum of fixed costs / (price per unit of goods - sum of variable costs per 1 unit of goods)
260,000 / (7500 - 5000) = 104 units of goods must be sold per month to break even.
TBU in money = price per unit of goods x TBU per unit of goods
7500 x 104 = 780,000 rubles is the minimum revenue to cover the company’s expenses.
Costs, both variable and fixed, are directly related to the volume of production. There is a point where the revenue from sales of products covers all costs, and this is called the critical point. This moment means that the enterprise has reached self-sufficiency.
Fixed Costs and Break-Even Point
Source: shutterstock.com
To forecast key indicators, it is necessary to determine:
what quantity of products should be produced and sold to achieve profitability;
find out the amount of production required to form a source of financial protection for the enterprise.
This point shows the minimum sales volume required to avoid losses. Anything above this point brings in profit, and anything below it brings in losses.
For example, a company sells children's france phone data overalls at a price ranging from 6,000 to 9,000 rubles per unit of goods, the average bill is 7,500 rubles.
Monthly expenses
Utility costs and rental costs 150,000
Amount of employee remuneration 150,000
Advertising 40,000
Other 20,000
Total: 260,000 rubles
Cost per unit of goods
Purchase of products 3700
Transportation 300
Piecework wages 1000
Total: 5000 rubles
TBU per unit of goods = sum of fixed costs / (price per unit of goods - sum of variable costs per 1 unit of goods)
260,000 / (7500 - 5000) = 104 units of goods must be sold per month to break even.
TBU in money = price per unit of goods x TBU per unit of goods
7500 x 104 = 780,000 rubles is the minimum revenue to cover the company’s expenses.
Costs, both variable and fixed, are directly related to the volume of production. There is a point where the revenue from sales of products covers all costs, and this is called the critical point. This moment means that the enterprise has reached self-sufficiency.
Fixed Costs and Break-Even Point
Source: shutterstock.com
To forecast key indicators, it is necessary to determine:
what quantity of products should be produced and sold to achieve profitability;
find out the amount of production required to form a source of financial protection for the enterprise.