How to calculate Break Even Point (BEP)?

A Break-Even Point or often abbreviated with the BEP is a point or a situation where sales and expenses equal to or a condition in which the company sales enough to cover his business expenses. The break-even point which is usually is called the "Break even" This usually compares the amount of income or the number of units that must be sold to cover fixed costs and variable costs related to generate a sale. In other words, Break even or Break Even Point is the point at which a business does not suffer losses and also does not gain an advantage.

Analysis of Break-Even Point (BEP) is generally used to calculate when a business or business/project will benefit by means of equating the total revenues by the total cost. Analysis with Break Even Point (BEP), corporate management can determine the minimum number of sales that must be maintained in order not to suffer losses and also knowing the amount of sales required to obtain the level of profit particular management as well as help in making decision whether to continue or suspend its business.

More about BEP (Break Even Point)

The following are some understanding or definition of BEP  (Break-even Point) according to the experts.

• The Break Even Point or a BEP can be defined as a situation where the total income of a magnitude equal to the total cost (TR = TC).


• Break-even is a situation where an undertaking does not gain profit and did not suffer a loss, in other words an attempt is said to break even if the amount of income (revenue) is equal to the amount of the fee, or If the profit contribution can only be used to offset the costs still.


• BEP or break-even sales volume which is the amount of income and the amount of the same output load, no profit or loss NET.


• The Break Even Point is the level of sales where the profit is equal to zero, or the total sales equals the total load or the point where total contribution margin equals the total load remains.


• A break Even Point is where total revenues equal total costs, the point is zero profits "or in the language of Indonesia can be translated into a Break Even Point is where the total fee income the same total, the point is zero profit.


• The Break Even Point is a condition of the company does not earn a profit and not suffer the losses means all fees that have been incurred for production operation can be covered by revenue from product sales.

How to Calculate BEP (Break Even Point)

Basically, there are two types of calculation of the BEP IE count the number of units to be sales in order to Break Even Point and count how many sales Dollars that need to be accept in BEP. Below is the formula-the formula for the calculation of two kinds of BEP.

BEP formula to calculate how the units to be sold in BEP

BEP formula to calculate how the units to be sold in order to Break Even Point can be calculate by dividing total fixed costs of production (Production of Fixed Cost) and the selling price per Unit (Price per Unit of Sales) reduce variable costs use to produce the products (Variable Cost). This is equation or formula of the BEP:

(1) BEP (units) = fixed cost of production/ (selling price per Unit – variable costs per Unit)

(2) BEP (units) = fixed costs/Contribution Margin per Production unit

BEP formula to calculate how the sale of Dollar to be accepted in BEP

A BEP formula to calculate how the sale of Dollar to be accept in order to Break Even Point can be calculate by dividing total fixed costs of production (Production of Fixed Cost) and the selling price per Unit (Sales Price per Unit reduce variable costs) use to generate a product (Variable Cost) is then multiplied by the price per Unit again. This is equation or formula of the BEP:



BEP (in Dollar) = fixed cost/Production (price per Unit – variable costs per Unit) x price per Unit

Or

The BEP (units) = fixed costs/Contribution Margin per Production unit x price per Unit

Description:

• BEP (units) = Break Even Point in units (Q)


• BEP (in $) = Break Even Point in Dollar (P)


• Fixed costs (Fixed Cost) = fixed cost amount (both are producing or not)


• Variable costs (Variable Cost) = cost of which there are an increasing amount of increase production as raw materials, auxiliary raw materials, electricity, fuel, and other


• The selling price per unit = selling price of goods or services produce per unit.


• The variable cost per unit = total variable cost per Unit (TVC/Q)


• Contribution margin per unit = selling price per unit – variable cost per unit (difference)

Example Case Calculation of the Break Even Point (BEP)

The following are examples of cases to calculate BEP (Break Even Point):

A company which produces Smartphones want to know the number of units that must be produce in order to reach the break even point (BEP) or point break even. Fixed cost of production was $ 500 million while the cost is from $ 1 million. The selling price per unit is $ 1.5 million. What is the unit that must be produce in order to reach the Break Even Point or point of break even?

Note:

fixed costs of production: $ 500 million,-
variable costs per Unit: USD 1 million,-
selling price per Unit: USD 1.5 million,-

Resolution 1: to calculate BEP in the Unit:

(1) BEP (units) = fixed cost of production/(selling price per Unit – variable costs per Unit)
(2) BEP (units) = 500 million/(1.5 million – 1 million)
(3) BEP (units) = 500 million/500,000
(4) BEP (units) = 1,000 units



So the company must be able to produce as many as 1,000 Smartphone units to reach the Break Even Point or point break even.

Resolution 2: calculate BEP in the form of money (Dollars):

(1) BEP (in Dollar) = fixed cost/Production (price per Unit – variable costs per Unit) x price per Unit of
(2) BEP (in Dollar) = 500 million/(1.5 million – 1 million) x 1.5 million
(3) BEP (in Dollar) = 500 million/500,000 x 1.5 million
(4) BEP (in Dollar) = 1.5 billion (1.5 billion)



So the company should be able to reach the sales as much as $ 1.5 billion so that it can Break Even (no profit and no loss).

To calculate the desired Advantages with the results of the analysis of the Break Even Point (BEP)

After making the above calculation, we can still count the number of advantages. That we want by using the results of calculation of the BEP. The number of units that must be produce to achieve profits that we want. Here's the formula:

The number of units = (desired Benefits (Dollars)/ (price per Unit – variable costs per Unit)) + number of units BEP

Or

The number of units = (desired Benefits (Dollars) Contribution Margin per unit/) + number of units BEP



For example, the company wants to get the profits or gains of $ 100 million, what is the unit of a smartphone should be produce?

Fixed costs of production: $ 500 million,-
variable costs per Unit: USD 1 million,-
selling price per Unit: USD 1.5 million,-
the number of units of the BEP: 1,000 units of
the desired Profit (Dollar): $100 million,-



The number of units = (desired Benefits (Dollars)/ (price per Unit – variable costs per Unit)) + number of units

number of units BEP = (100 million/(1.5 million – 1 million)) + 1,000
number of units = (100 million/500,000) + 1,000
the number of Unit = 200 + 1,000
number of units = 1,200

So to get the profits or gains as much as $ 100 million, the company should be able to produce as many as 1,200 units of smartphones.