![]() An example is below: The graph above demonstrates a break-even point (BEP) of 100 units. In this case, the business would need to sell 101 T-shirts to break even. A break-even graph shows the revenue, costs, number of products sold and BEP. In such cases, the business would always need to sell an additional item in order to break even. Sometimes the result is a little more complex, as the BEP may not be a whole number (eg 100.12). So this business breaks even when it sells 100 T-shirts. ExampleĪ business that sells T-shirts wants to find out what its BEP is. A break-even calculation is a numerical method, whereas a break-even analysis chart is a pictorial representation of the situation in the form of a graph. the point of minimum average variable cost (AVC), as seen on the graph. It is a readable reporting device that would otherwise require voluminous reports and tables to make the accounting data meaningful to the management. determine and describe the break-even point and shut-down point of production. It is considered to be one of the most useful graphic presentations of accounting data. The calculation in brackets, which gives the contribution per unit, must be completed first. Meaning of Break Even Chart: A break-even chart is a graphical representation of marginal costing. ![]() A1: Sales - This is the label for the Sales section of the. This loss explains why the companys cost graph. Create the layout for your break even sheet. It would realize a loss of 20,000 (the fixed costs) since it recognized no revenue or variable costs. The result of this calculation is always how many products a business needs to sell in order to break even. This sheet will house your main BEP (Break Even Point) chart. You may also see this calculation written as:īreak-even output = Fixed costs ÷ (Selling price per unit− Variable costs per unit) Once the contribution per unit is found, the break-even output can be calculated:īreak-even output = Fixed costs ÷ Contribution per unit Firstly, a business must work out the contribution, this is calculated as:Ĭontribution per unit = Selling price per unit – Variable costs per unit This involves working out the contribution that each product sold provides towards the fixed costs of a business. ![]() Using break-even allows a business to understand its costs, revenue and potential profit to help inform business decisions.īreak-even can be calculated using the contribution method. The break-even level of output informs a business of how many products it needs to sell to reach the break-even point (BEP). Break-even is the point at which revenue and total costs are the same, meaning the business is making neither a profit nor a loss. ![]()
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