The break-even point (BEP) is the price point at which the sales revenue is equal to the costs, generating zero profit.
The break-even point allows a company to know when it, or one of its products, will start to be profitable. If a business’ revenue is below the break-even point, then the company is operating at a loss. If it’s above, then it’s operating at a profit.
Formula to calculate break-even point.
Fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.
Sales price per unit this is the selling price for just one products.
Variable cost per unit is the production cost for each unit produced that is affected by changes in a firm’s output or activity level.
Example:
A managerial accountant in charge of a large furniture factory’s production lines and supply chains wanted to establish the break even point of the factory. The fixed cost of the production was $ 200,000, the variable cost per item was $ 15 and the sales price per item was $ 50. What is the price at the break even point.
Therefore, if the price stays right at $5714.30 they are at the BEP, because they are not making or losing anything.
