Break Even Point

Maulana Rizky Faadillah - 195020207111058

What is Break Even Point (BEP)

The breakeven point is the level of production at which the costs of production equal the
revenues for a product. In investing, the breakeven point is said to be achieved when the
market price of an asset is the same as its original cost
 Why break-even is important
For any business, knowing your break-even point is an important tool for long-term planning. It is possible
for businesses can have a high turnover ratio, but still be making a loss. Therefore, by knowing your break-
even point can help when making decision in areas such as deciding prices, setting sales budgets, and
preparing business and operations plans.

By knowing where your break-even point is, you can work out a number of things, such as:

• How many units you need to sell before you start making profit
• How an increase or decrease in price per unit will affect your break-even point
• How your profits will be affected by reducing the price of a unit, or the volume of sales
• How an increase in fixed costs will affect your break-even point
Break-even point analysis
• To calculate break-even, you can use the following formula:

Where:
• Fixed costs are those that do not change over time or depending on the productivity of the company.
• Variable costs are those that are affected by fluctuations in production and so changes between
given periods.
• Sales price per unit is the selling price of the unit or product.

And just to keep in mind, another name used for Sales price per unit - Variable cost per unit
is contribution margin per unit so do not worry if some formulas use this phrase, as it means the
same thing.
 Graphically representing the break-even
point
This graph shows an example of where break-even point is, in accordance with total costs
(made up of both fixed and variable costs).

Where number of units is represented on the X axis

(horizontal), and revenue in GBP is represented on the
Y axis (vertical).

This graphs indicates that break-even point is reached

when you have sold 200 units, and received a revenue
of 500GB.

Before the break-even point, the area below total costs

(yellow line) and above revenue in GBP (blue line) is
considered loss. And after the break-even point, the
area above the total costs (yellow line) and below
revenue in GBP (blue line) is considered profit.
To sum things up:

Break - even point: when revenue = total costs (where total costs = variable cost + fixed
cost)

Profit: when revenue > total cost

Loss: when revenue < total cost

Thank you