The Smart Way to Calculate Break Even Points for Business Activities

As a businessman, of course you often make investment-related decisions for marketing development. To calculate how many years the company can make a profit or to ascertain when your business has a turnover, you need a break even point calculation. Break even point or other name from the break-even analysis is defined as a situation or point at which the company in its operations does not gain profits and does not experience losses as well. In short, the break even point is the break-even point between the amount of profit and cost of a company in the same or balanced position, so that in the process does not get profits and losses. Then how to calculate the break even pointand what are the calculation components? The journal will go deeper into the break even point calculation  .

Breakeven Point component

In calculating how much BEP or breakeven of course requires components. The following are components of BEP:

  1. Fixed Costs ( Fixed Cost, both when the company is producing or not producing.
  2. Variable Cost ( Variable Cost, this component is dynamic and depends on the level of production volume. If production increases, variable costs will also increase.
  3. Selling Price (Selling Price), the selling price per unit of goods or services that have been produced.

Also read:  Contribution Margin as a Financial Analysis Tool

How to Calculate Breakeven Points (BEP)

The following is an example of how to calculate BEP with a case study:

Sample case

A company named “Usaha Gemilang” has data on costs and production plans as follows:

1. a month fixed costs amounting to Rp140 million, consisting of:

Employee + Owner Salary Fee: Rp. 75,000,000

Car Depreciation Fee: Rp1,500,000

Health Insurance Fee: Rp. 15,000,000

Office Building Rental Costs: Rp. 18,500,000

Factory rental fee: IDR 30,000,000

2. Variable costs per unit of Rp. 75,000.00 consisting of:

Raw Material Cost: IDR 35,000

Direct Labor Cost: Rp. 25,000

Other Fees: Rp. 15,000

3. Selling Price per Unit IDR 95,000

Now let’s calculate what the BEP level of business is both in units and in rupiah:

BEP Unit = Biaya Tetap (harga/unit – biaya variable/unit)

  • BEP Unit = IDR 140,000,000 IDR 95,000 – IDR 75,000)
  • BEP Unit = Rp140,000,000 Rp20,000
  • BEP Unit = Rp. 7,000
  • So, the BEP per unit from the example above is Rp. 7,000 / unit

BEP Rupiah = Biaya Tetap (kontribusi margin/unit harga/unit)

  • BEP Rupiah = IDR 140,000,000 (IDR 20,000 IDR 95,000)
  • Rupiah BEP = Rp140,000,000 0.2105
  • Rupiah BEP = Rp.665,083,135
  • So, the Rupiah BEP from the example above is Rp.665,083,135

With the BEP calculation above, we can conclude that in order to break even with a sales price of Rp95,000, the company must be able to sell 7,000 units. If the number of sales does not reach 7,000 units, it will not cover production costs that have already been incurred.

By knowing when a company passes the BEP level, you will also be able to calculate what the minimum sales are to get the profit you are targeting. As a manager or business owner, you can add the targeted profit to the fixed costs you have.

For example, a month profit target is Rp. 60 million, then the minimum sales that must be achieved are as follows:

  • BEP- Profit = (fixed costs + target profit) (price / unit- variable cost / unit) BEP – Profit = (140,000,000 + 60,000,000) (95,000 – 75,000)
  • BEP – Profit = 200,000,000 20,000
  • BEP – Profit = 10,000 units

The calculation of break even points in a business is very important to determine sales targets that must be met in order to obtain business profits. Break even points can be used as material to evaluate any investment from a marketing campaign that has been carried out. This is because it relates to the cost of marketing programs, analyzing the company’s ability to consumer demand for a product. This analysis instills discipline in making marketing decisions, then looks at opportunities for how likely they are to succeed.

Online accounting software journal , helps your efforts to calculate breakeven points accurately and accurately. With Journals , you can also get the ease of recording for corporate accounting purposes anytime and anywhere. Not only recording transactions, the Journal also provides features for automatically invoicing, tracking the availability of goods, and asset management that will help develop the value of your business assets in the future

 

by Abdullah Sam
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