Break-even schedule: construction, break-even point and analysis. How to build a break-even schedule for an enterprise?

The enterprise is created in order to make a profit. Undoubtedly, large corporations will argue that "they think of us," that "we deserve it," etc. But everything begins with profit. If it is and constantly increases - the business is profitable, if on the contrary - the enterprise is considered "burned out".

What do you need to know in order to stay in the market? What methods of forecasting and calculations to apply to a beginning firma? One of the simplest, but from this no less reliable - the ability to build a break-even schedule.

Basic concepts of enterprise sustainability

Now it is impossible to open an enterprise without thinking about when it will bring the first profit. The fundamentals of the economy, which are taught even to high school students, contain information about business planning. The most important skills of a businessman should be considered not so much an "entrepreneurial vein" as an ability to assess risks, costs and time spent. To indicators of the stability of the enterprise can include such basic characteristics as:

• Break-even schedule of production;
• Margin of production;
• Levers of production acceleration.

A bit of history

In the early 30-ies of the last century, the scale of production increased at a fairly rapid pace. In conditions of growing competition, methods of assessing the possibilities of entrepreneurship were needed. It was then that a technique for estimating the critical volume of production appeared (now known as the break-even schedule of the firm). Engineer Walter Rautenstrauch proposed to correlate the volume of output with the gross expenses of the enterprise. However, to optimize the firm's activities, it was necessary to divide costs into fixed and variable costs.

Basic concepts

We can say that the success of an enterprise is based on three factors: the price of the product, the volume of production, and the profit. The price of the goods is determined by the market. The volume of production is determined by the capacity of the enterprise, and the profit is the cost of production. It sounds somewhat absurd, but the lower the gross costs, the lower the cost, and therefore the difference between the market price of the product and the cost price is greater. This is profit.

The construction of a break-even graph allows us to find the optimal ratio of the named characteristics. Microeconomics calls such analysis CVP-analysis. The abbreviation is formed by the first letters of the English words: Cost-Volume-Profit. It is important to carry out such an analysis even before the start of production activities to avoid disappointment in the future.

One of the elements of CVP is the calculation of the volume of output, in which the initial investment and current costs will pay off. In other words, it can be said that analyzing the break-even schedule allows you to determine when an enterprise will begin to make a profit.

What you need to know in order to build a graph

To answer the question about obtaining the first profit, it is possible in two ways: to determine the time (in six months, for example) or to calculate the quantity of products to be sold (1,000 pieces of goods). In both cases, they talk about the break-even point calculation. This is the situation in which the sum of all the costs of an enterprise, including the initial investment, will be equal to the income from units sold at the market price.

How to build a break-even schedule? To begin with, you need the following data:

1. Fixed costs are costs that do not depend on the volume of production. The formulas use the abbreviation TFC (total fixed cost). If it is a question of new projects, fixed costs are considered to be initial investments.
2. Variable costs are the production costs of output. They are indicated by the abbreviation TVC (total variable cost).

Market price of a unit of production. It is denoted by the Latin letter P (price).

Mandatory Assumptions

In practice, it is possible to say that the moment of production production coincides with the moment of sale, only in the sphere of services. It is there that the hairdresser sells his skills in the form of a customer's haircut, the chef prepares the salad only after the visitor ordered it, etc. Therefore, in order to build a break-even schedule, it is necessary to make several reservations:

• The moment of production coincides with the moment of its sale;
• The norms of consumption for the production of a unit of goods, as well as the cost of consumables and raw materials are unchanged for the calculation period;
• Retail price is also fixed;
• Determine the dependence of revenue on the volume of output by a linear function.

How to calculate breakeven point

Actually, the formula for determining the required output is as follows:

BEPunits = TFC / (P-VC).

If the received quantity of the produced goods is divided by the production rate per day, we will get the time for which the project will pay off. It should be remembered that in a month not more than 22 working days. For the convenience of calculations, the duration of the month is normally taken to be 20 days.

Let's give a simple example of calculation. It is necessary to invest 20 thousand den. Units At variable costs of 25 den. Units You can adjust the sales at a price of 50 den. Units Simple calculations give a profitability threshold of 800 pieces of products (BEPunits = 20000 / (50-25) = 800 pieces). Having determined that 5 products can be produced per day, we get that it takes 160 working days to start making profits. It remains only to determine the amount of income necessary to achieve a break-even point. Multiply the calculated output by the retail price (800 * 50) and get 4000 den. Units

Analytical value of the break-even schedule

Business planning involves identifying risks that can negate all business activities. The break-even schedule is one of the methods for predicting and analyzing them. For this, it is necessary to consider the activity of the firm within a certain time period.

In this case, not fixed capital costs are attributed to fixed costs , but expenses independent of output volumes: payments for insurance and credits, payment of industrial premises (if it is rent), etc. If the enterprise produces not one type of product, but in the modern world Survive with such a portfolio of products is impossible, then it is necessary to make calculations for all types of goods. In this case, you need to build a break-even schedule in Excel. This will significantly reduce time costs. Having built all the charts on the same plane, analysts can determine which product is really successfully sold in the market, and which is a burden for the enterprise.

For the distribution of fixed costs, the share of each group of goods in the total amount is determined. Fixed costs are distributed according to the composition ratio.

Stock of financial strength

If a graph is constructed, the breakeven point is defined. This means that you can calculate the financial strength of the enterprise. He determines how much the firm can painlessly reduce the volume of output. For calculations, use the difference between sales revenue and the break-even point attributed to revenue. The obtained characteristic determines the percentage of output of goods, on which production volumes can be reduced.

It should be noted that the strength value obtained is not an accurate characteristic. The fact is that in the portfolio of the enterprise there are both "successful" products, and "lagging behind". Reducing the production of "successful" to the maximum possible number, you can get a negative result of the company.

Production leverage

What else can you learn if you calculate a break-even schedule? Data on costs and revenues can be used to determine the production leverage. This characteristic shows the percentage change in profit with an increase in production by 1%. For calculation, the margin between the revenue received and production costs is divided into the same margin, previously reduced by the amount of fixed costs. This indicator may vary with time, so it is necessary to clearly define the time interval.

Settlements for trading

How to build a break-even schedule for a store that sells multiple product groups? Even when using the software, the plane with the graphs will be so loaded that the analyst will need time to "decrypt" the result. For a rough estimate of the break-even point, you can use this formula:

BEPincome = TFC * (100 / i).

Index i determines the average trade margin.

Drawing a graph

Most people better perceive the graphical representation of information. To determine the break-even point, you can draw a break-even schedule in Excel. The vertical axis usually determines the money (the amount of revenue, costs, price, etc.). The horizontal axis characterizes the units of production (sometimes - time).

Elementary knowledge in the field of mathematics tells us that the graph of fixed costs is a straight line parallel to the horizontal axis; The variable cost graph leaves the origin of the coordinate axes. Similarly, from the beginning of the count, the income earning schedule also appears. To determine the break-even point, it is necessary to construct a graph of total (gross) costs. This line will run parallel to variable costs, but its beginning lies on the vertical axis at the level of fixed costs.

The point at which the graph of gross costs intersects with the income graph, and determines the break-even production.