Break-even point graph: how to build

Any businessman tries to determine when his company ceases to bring losses, and begins to earn, working out the means invested in it. Break-even point is a good tool for those who want to see the ratio of revenues and costs of the enterprise. For a better understanding, you can build a break-even point chart, which will clearly show the rate at which revenue grows, fixed and variable costs, and see at what time the cash flows will become positive.

Determination of breakeven point

This parameter shows how many products a company needs to produce in order to cover all its costs at a certain price, while the entrepreneurial profit must be zero.

If the enterprise sells more goods, it will make a profit. In the case when the number of products sold is below the breakeven point - the entrepreneur works at a loss.

The natural expression of the parameter

The calculation can be made in two ways: in monetary terms and in kind. This indicator in money terms has a second name - the threshold of profitability - the total revenue of the enterprise, which covers the total costs. It is often used to assess the performance of family farming enterprises. Also, thanks to the profitability threshold, you can calculate the minimum price at which all costs will be fully covered.

In order to determine the amount of products produced by the company, one should take advantage of indicators of general and variable costs, as well as prices. If you plot a break-even point, you can skip the price and replace it with revenue.

Let us imagine that the total fixed costs are the Hypostasis; Variables by 1 unit. Products - Ip; Cost of 1 unit. "Tsed." Then the formula will take the form: Istost / (Tsed-Ip).

The difference between variable costs per unit of output and price is called marginal revenue per unit of output.

Profitability threshold

The calculation of the profitability threshold is more complicated than the breakeven points in physical terms. To calculate this indicator, you should take into account fixed costs (TFC), revenue (R) and general variable costs (TVC). The difference between revenue and variable costs is marginal revenue (MR).

Using these indicators, we need to determine the margin profit ratio (KMR) - the ratio of marginal revenue to revenue. The profitability threshold is the ratio of total costs to the coefficient of marginal revenue - TFC / KMR. In some cases, it is more convenient to avoid calculating this coefficient. Then the formula can be represented as follows: TFC * P / MR.

Break-even point graph

The value of the break-even point in the planning of firms can not be overestimated, as increasing it can mean difficulties in making a profit. It is important to note that the value of the parameter will change not only because of rising costs or prices for products, but also in the case of expansion of production. In order to see in more detail the relationship between costs and production volume, it is necessary to construct a break-even point graph. It is actively used in the modern economy.

To understand how to plot the break-even point yourself, you should first try to understand the theory and comprehend what factors affect this value.

On the abscissa axis, you must display the number of goods sold. The revenue of the enterprise is reflected on the ordinate axis. Next, graphs of variables and fixed costs should be depicted. The amount of fixed costs does not vary depending on the number of sales and sales, so their schedule will be represented by a line parallel to the abscissa. The sum of the variables of the same costs is proportional to the size of sales, so this type of cost is shown as a straight line that leaves point 0 and grows along with the increase in the quantity of output.

On the break-even point chart, you must reflect the total costs. To do this, you need to summarize the variables and fixed costs. Therefore, the break-even points are displayed in parallel with the variable costs by the line. It, in turn, originates where there are constant costs.

The last step in plotting is to show the company's income line. On the chart, the break-even point is at the point where revenue crosses the line of common costs. The economic meaning of the break-even point is the revenue at which the profit is zero or the revenue that can cover all the company's fixed and variable costs.

Breakeven point graph in Excel

Calculation of break-even point on the calculator in our time, few people engaged in a professional level. This can be done in Excel. In it, you can create a schedule.

To do this, you need to write out the revenue and total costs for a different volume of production. Then calculate the desired value. In order to build a graph, you should select all the above mentioned data, and then create the necessary diagram (Insert / Diagrams / Graph). For clarity, it is better to use a chart with markers.