What is Break Even Point, BEP Formula and How to Calculate BEP?

What is Break Even Point

What is Break Even Point

In analyzing a business company, usually using the break-even point calculation is one of the things that is useful for the future journey of the company itself for good decision making.

Maybe there are still many who do not fully understand what is meant by the definition of BEP according to experts, how to analyze BEP, and many other things related to the BEP formula and calculations carried out.

Therefore, this time, we will provide an explanation related to BEP which may also be able to help for various needs.

Definition of Break Even Point

Definition of Break Even Point

Before discussing further related to Break-Even Point or BEP, you need to understand the basic concept of what is meant by a break-even point first well.

BEP is a point that determines where income is equal to the amount of capital issued so that there is no loss or profit for a business or company.

At this point, the total loss is exactly at point 0 which means the company or business does not get either a loss or a profit for the business it runs.

BEP can occur if the operations carried out by the company use fixed cost sources and the sales volume obtained is also only able to cover fixed costs and also existing variable costs.

If the sales obtained can only cover both variable costs and part of the existing fixed costs, then the company will suffer losses that are quite impactful.

However, if the opposite happens, namely the company has sales that exceed the variable costs and fixed costs incurred, then the company benefits from the business being run.

Sometimes for some people who do not understand what BEP is, they may be confused about how important BEP is for the journey of a company or business, even BEP is quite widely used by players from the stock market world.

Usually, the calculations used in the stock market itself use the BEP method when you want to buy and sell the shares you own, so you can know for sure when it is the right time to call or buy and when to put or sell.

Currently, there are quite a several applications that can make it easier to do calculations for BEP, so there is no need to bother calculating using existing formulas.

Know the Concept of Break Even Point Correctly

Concept of Break Even Point

In order to be able to know related to what the production BEP looks like is the right way to analyze the company, it is also necessary to know what the BEP concept looks like. Basically, the calculation and closing of the BEP depends on the existing concept and is used as the basis for what is used.

Therefore, it is necessary to know what are the basic concepts that can be used in carrying out the BEP assumption itself so that all forms of calculations or closures that are carried out can be carried out correctly.

Before getting to know more about how to calculate production BEP, it is necessary to know the basic assumptions that can be used as follows:

  1. All costs incurred by the company will need to be classified into fixed costs and variable costs in accordance with existing regulations.
  2. The total variable costs change according to changes in volume, while there is no total change in fixed costs.
  3. The amount of fixed costs does not change even though there are changes in activities, while the fixed costs for each unit can vary.
  4. The selling price used for each unit needs to be constant throughout the analysis period.
  5. The number of products produced will always be considered out of stock and all sold out.
  6. Companies can choose by selling and making only one type of product, this is if the company makes or chooses to sell more than one of the existing types of products, the balance made on each sale proceeds can also be done permanently for each product. /li>

It is important to be able to understand how the basic concept of the BEP works, so that the existing provisions and need to be implemented can also work well. In addition, the points that need to be used in this case can also be constantly analyzed properly and precisely.

Easy and Fast Break Even Point Analysis

brake even point analysis

In calculating the BEP, it is also necessary to analyze the break even point correctly because this is a basic thing to understand from all the methods in the BEP calculation.

Later, it is hoped that you will be able to more deeply and further understand what BEP is and how it works to calculate the profits and losses of a company in running its business.

Therefore, understanding basic things such as concepts that have been explained well before and also the analysis that needs to be done becomes an important thing in a business trip.

Basically, the benefits of BEP for the company itself are needed to find out how big the volume of existing sales is and will be able to find out the income in terms of profits and losses obtained.

Therefore, BEP is something that has an important role in business because it is able to know when the company needs to make sales and purchases and know what the next steps need to be done properly.

In addition, BEP is also expected to be able to help companies maintain their growth well so that they are always in a constant or stable position in their business journey.

The following are the basic benefits of having a break even point analysis as follows:

  1. Help to provide as much information as possible on the investments that the company needs to make or need to take in order to help offset the expenses incurred at the beginning of the production process.
  2. Helps to provide proper margin as the implementation of a step by giving clear boundaries so that later can reduce the opportunity to suffer a certain amount of loss.
  3. Can be widely used in any case, either to use analysis in conducting stock trading activities or to analyze the required budget of various projects that the company wants to carry out itself.

How to Calculate and Break Even Point Formulas

Calculating and Break Even Point Formulas

Before discussing further related to what needs to be known in the break even point formula, it is necessary to understand the basic components in performing the BEP calculation itself. Four of these basic components include:

  1. Fixed costs which are fixed costs or are also referred to as the amount of costs that will not change even though the volume of production produced then changes.
  2. Variable cost which is a variable cost and can change according to changes that occur in the production volume itself.
  3. Income or also called revenue which is the amount of income that will be received by the party from the seller of the goods itself.
  4. Profit or better known as profit is the sum of the remaining income after the deduction of fixed costs and variable costs.

BEP Formula

After knowing what the basic components in BEP are, this time we will be given how to calculate the break even point correctly using the existing formula.

BEP = Fixed costs : (Selling price per unit – variable cost per unit)

with the formula for the selling price per unit and the variable cost per unit is the formula for the contribution margin for each unit or becomes the formula:

BEP = Fixed Cost : Contribution margin per unit

In calculating BEP in rupiah, the formula is:

BEP in a certain currency = Selling price per unit x BEP per unit

The formula to calculate and find out the amount of the contribution margin is:

Contribution margin : Total sales – Variable costs

Examples of Break Even Point Questions and Answers

Examples of Break Even Point Questions and Answers

In order to get a deeper understanding related to how to calculate BEP, it is also necessary to know examples of existing break even point questions so that the explanation can be clearer.

This can help to provide an overview of the BEP calculations carried out so that they can be more precise and easier.

Sample BEP Questions

There is an accountant from a company who holds the operational part of the implementation of production and supply of goods, with the amount of sales in order to cover the operational costs incurred of 50 million rupiah. The profit to be achieved is 20 million rupiah. Here’s how to calculate the correct BEP, namely:

Total fixed cost = 50,000,000
Variable cost per unit = 30,000
Selling price for each unit = 50.000
Targeted profit = 20,000,000

So, BEP uses the following formula:
BEP = 50,000,000 : Existing contribution margin
BEP = 50,000,000 : (50,000-30,000)
BEP = 50,000,000 : 20,000
BEP = 2500 units

BEP in rupiah = Selling price for each unit x Total BEP unit
BEP in rupiah = 50,000 x 2,500 units
BEP in rupiah = RP 125,000,000.00

Indeed, it cannot be done quickly to understand and master related to the use of BEP because it requires a lot of practice to be able to do it more precisely and neatly.

However, as explained above, it is hoped that it can help you to take an outline, especially about the basic concepts, so that you can use BEP for those of you who want to run a business or company.

That was the explanation to find out the break even point is the right way to be used in analyzing how the company can run well and smoothly so that all decisions taken are the right things.