5 Definitions of BEP According to Experts You Need to Know

understanding of break even point

understanding of break even point

Have you ever heard of break even point, what do you think BEP means? The following is the definition of BEP according to experts from the field of Economics and Business education.

Many people often misinterpret the notion of a break even point which is defined as a return on investment. Even though these two things are different, the return on investment in accounting is referred to as return on investment (ROI) where the capital you spend when running a business can already provide benefits within a certain period of time.

Well, first, let’s start discussing what is BEP? Break even point is a calculation where later the amount of income from the business is equal to the amount of capital issued. If confused, BEP can be interpreted as the break-even point of a business.

Definition of Break Even Point

The definition of Break Even Point (BEP) in the book Analysis of Financial Statements is a condition where the company does not get a profit or profit and also does not suffer a loss. So, the costs incurred during the production process have been covered by the income obtained from the sale of these products.

While the definition of BEP according to experts is as follows:

1. BEP = Earning before tax and interest

The definition of BEP according to experts, such as Garrison and Noreen, emphasizes the sales figures that need to be achieved to cover the total operational costs that have been previously incurred.

The collection of product selling value is said to have reached BEP if the profit collected is net profit and the value is proportional to the costs that have been incurred for production.

According to experts Garrison and Noreen themselves BEP is also the level of sales before tax and interest, where it needs to be calculated in detail by first looking at the variable and fixed costs incurred during production.

2. BEP = Cost volume profit analysis

For a business management expert, Abdullah, the break even point is one of the benchmarks for cost volume profit analysis, where the management or leadership of a new company can decide the selling price related to the company’s financial condition. Of course, after reviewing several things related to BEP, such as:

  • What is the minimum production figure so that the determined selling price will not cause losses, especially when the demand market condition is not higher than the supply figure.
  • Determining how many products or services must be sold in the market to achieve a certain profit rate.
  • Determining what percentage of sales decline that can still be tolerated by the company so as not to suffer a significant loss.

3. BEP is selling volume equal to total expenses

Understanding BEP according to experts, including Henry Simamora, Bambang Riyanto, and Rony, BEP will be achieved when the total revenue from the sales volume that occurs has a nominal value that is exactly the same as the total expenses incurred during the production process.

In other words, there is no condition for the entrepreneur to get a net profit or a net loss. 

4. BEP = Profit equals zero

According to business economics education practitioners, Mulyadi, Sigit, to PS. Djarwanto, BEP is a method used by a businessman from a beginner to a professional businessman, where the minimum sales volume needs to be achieved so that the business does not suffer losses or profits are at zero.

For ordinary people, this kind of condition is categorized as a break-even condition, because in the calculation of profit and loss, the entrepreneur does not make a profit but also does not lose.

5. Total revenue = Total cost

The definition of BEP according to experts such as Zulian Yamit and S. Munawir is also widely used in scientific references related to BEP. The two experts state that total revenue is equal to the total production costs that have been added together, both fixed costs and variable costs.

The basic knowledge of BEP is what makes the iReap cashier application an alternative to today’s business world. Especially considering that this application can help novice entrepreneurs find out the BEP point of their business with a simple method.

What is the function of the break even point?

After knowing what is meant by break even point then what is the function of calculating BEP?

If the return on investment serves as an analysis of the efficiency of the capital used, the BEP has the function of making what is produced more efficient in order to obtain optimal profits.

If you want more details, the various functions of BEP are summarized in the following points:

  1. BEP has benefits for entrepreneurs to be able to determine the volume of goods to be produced after being able to determine the volume of production, BEP also serves to help project profit from the company.
  2. An entrepreneur can also determine the next efficiency step, for example to reduce the burden that is considered unnecessary in the company’s performance.
  3. The function of the BEP is to determine changes in the value of profits that may occur if there is a change in the price of the product.
    This is actually obtained from the understanding that the BEP value and the price of the product sold are in a linear line.
    Therefore, if one of the points in the definition is high, the other points on the line will also be high.

Well, if you want to know how to calculate the break even point then the first thing you need to know is the components in the BEP.

The components in the BEP include fixed costs, variable costs, selling prices and revenues. If you don’t want to bother, you can actually use the iReap application which makes it easier for you to calculate BEP.