What is meant by BEP (Break Even Point) ? In accounting and business economics, the meaning of BEP is a certain point where expenses / expenses and income are in a balanced position (break-even point) so that there is no loss or profit.
Another opinion states that the meaning of BEP is a condition in which the company’s operating activities do not suffer losses and also do not earn a profit (break even) because the amount of costs incurred is the same as the amount of revenue.
This Break Even Point analysis technique is used by a company to analyze the projections of how many units will be produced or how much money must be received so that the company is at the break-even point or return on investment.
Also read: Understanding the Balance Sheet
Understanding BEP According to Experts
In order to better understand what BEP (Break Even Point) is , we can refer to the opinions of the following experts:
- Zulian Yamit
According to Zulian Yamit (1998: 62), the definition of BEP is a condition in which the total revenue is equal to the total cost (Total Revenue = Total Cost).
- Henry Simamora
According to Henry Simamora (2012: 170), the definition of BEP is sales volume where the total revenue and total expenses are the same, there is no net profit or loss.
- S. Munawir
According to S. Munawir (2002), the definition of BEP is a condition in which a company does not earn a profit and does not suffer loss (total income = total costs).
- Mulyadi
According to Mulyadi (1997: 72), the meaning of BEP is a condition in which a company does not earn a profit and does not suffer losses, in other words a business is said to be even if the amount of revenue (revenue) is the same as the total cost, or if the contribution profit can only be used for cover fixed costs only.
- Fertile Harahap
According to Subur Harahap (2004), the definition of BEP is a condition that a company does not earn a profit and does not suffer a loss. This means that all costs incurred for production operations can be covered by revenue from product sales.
Also read: Income Statement
BEP components
Break Even Points (BEP) consist of several components in it. The BEP components are as follows:
- Fixed Costs (Fixed Cost)
Fixed costs are costs that are constant if the company carries out production activities or does not produce. Examples of fixed costs include; labor salaries, machine depreciation costs, equipment costs, and so on.
- Variable Cost (Variable Cost)
Variable costs are costs per unit which are dynamic depending on the volume of production measures. If the planned production increases, the variable costs will increase. Examples of variable costs; electricity costs, raw material costs, plastic bag costs, and so on.
- Selling Price
The selling price is the selling price set per unit of goods or services that have been produced by the company.
Also read: Understanding Accounting
BEP goals
Every company certainly wants to get a profit from its business activities. To achieve this, there are several things that can be done related to Break Even Points, namely:
- Pressing production and operational costs to the lowest possible without compromising quality and quantity so that companies can maintain product price levels.
- Determine the product price with a full calculation so that the product price is in accordance with the desired profit.
- Increase the volume of activity as much as possible.
The three points above must be carried out simultaneously because each of them has an impact on the overall operational activities. That is why the profit structure of a company is often described in a Break Even Point (BEP) to make it easier to understand the relationship between costs, activity volume and profit.
Benefits of BEP
After knowing the meaning of BEP and its purpose, we will also find out what are the benefits for a company. According to Bustami and Nurlela (2006: 208), the following are some of the benefits of BEP:
- The company can find out the minimum number of sales that must be maintained so as not to lose.
- Companies can find out the number of sales that must be achieved in order to make a profit.
- The company can find out how much reduced sales are so that the company does not experience losses.
- The company knows the extent of the impact of changes in selling prices, costs, and sales volume.
- Companies can determine the product mix needed to achieve the targeted profit levels.
Meanwhile, according to Carter and Usry, there are two benefits of Break Even Points analysis for a company, namely:
- Companies get information and guidance in solving various problems they face. For example, adding / replacing production facilities or investing in other fixed assets.
- Companies get information that can help the decision-making process, in relation to the decision to close the business or not, and when it should be terminated.
BEP formula
BEP formula
There are two kinds of formulas that can be used for Break Even Point analysis, namely:
- BEP in the Unit
BEP = FC / (P – VC)
In this formula, we can find out how many units of goods / services must be produced to break even.
Information :
- BEP: Break Even Point
- FC: Fixed Cost
- P: Price per unit
- VC: Variable Cost
- BEP in Rupiah
BEP = FC / [1 – (VC / S)]
In this formula we can find out how much Rupiah must be received to get the break-even point. Note: the calculation of [1- (vc / s)] is also called the Contribution Margin Per Unit.
Information :
- BEP: Break Even Point
- FC: Fixed Cost
- VC: Variable Cost
- P: Price per unit
- S: Sales Volume
Example of Calculating BEP
It is known that a company PT. Elang Mandiri in the field of hammerhead tooling equipment has the following data:
- Production capacity that can be used by 100,000 hammerhead machines.
- The selling price per unit is IDR 6,000 per unit.
- Total fixed costs are IDR 100,000,000 and total variable costs are IDR 200,000,000.
The details of each of these costs are as follows:
- Fixed Costs (FC)
- Factory overhead: IDR 40,000,000
- Distribution fee: IDR 45,000,000
- Administration fee: IDR 15,000,000
Total FC = IDR 100,000,000
2.Variable Costs (VC)
- Material costs: IDR 60,000,000
- Labor costs: IDR 65,000,000
- Factory overhead: IDR 15,000,000
- Distribution fee: IDR 40,000,000
- Administration fee: IDR 20,000,000
Total VC : IDR 200,000,000
The following are the steps for calculating the BEP:
- Total sales => 100,000 units x IDR 6,000 = IDR 600,000,000
2. Unit fixed costs => 100,000,000 / 100,000 = IDR 1,000 per unit.
3. Unit variable cost => 200,000,000 / 100,000 = IDR 2,000 per unit.
BEP in units => IDR 100,000,000 / (IDR 6,000 – IDR 2000) = 25,000 units. This means that the company must sell 25,000 units in order to get BEP.
BEP in Rupiah => IDR 100,000,000 / [1 – (IDR 200,000,000 / IDR 600,000,000) = IDR 150,000,000. This means that the company will be BEP after receiving a turnover of IDR 150,000,000.
This calculation can be proven by the formula BEP = Unit BEP x unit selling price.
BEP => 25,000 x IDR 6,000 = IDR 150,000,000
Also read: SWOT analysis
That is a brief explanation of the meaning of BEP (Break Even Point) , the BEP formula, components, benefits, and examples of simple BEP calculations. Hopefully this article is useful and adds to your insight.
