Break Even Point – what is it?
Break Even Point, or break-even point, is the level of sales at which revenue covers all costs and profit is zero. It is an important financial indicator that helps determine the minimum sales volume needed to cover the costs of operations. The break-even point is extremely important for businesses to assess how much needs to be sold to make the business profitable. In this way, managers can better plan pricing strategy, analyze cost efficiency and monitor financial risks. Break Even Point is applicable to both manufacturing and service companies to help make key financial decisions.
Frequently asked questions
1. How to calculate Break Even Point?
Break Even Point is calculated by dividing fixed costs by the difference between selling price and variable unit cost (unit margin). The formula is: BEP = Fixed costs / (unit price – unit variable costs).
2. Why is Break Even Point important?
Break Even Point is a key financial indicator for monitoring financial risks, cost efficiency and better operational and financial planning.
3. When is Break Even Point achieved?
The break-even point is reached when a company’s total revenues are equal to its total costs, i.e. when the company records neither profit nor loss.
