break-even point

The break-even point is a very important concept in business accounting. It represents the moment when the generated revenues are equal to the total costs and expenses, that is, it is the moment when the company has neither profit nor loss. To calculate the break-even point, it is necessary to take into account some elements. The first one is the fixed cost, which are the expenses that the company has regardless of the volume of production or sales. Examples of fixed costs are the rental of the property, salaries of administrative employees, electricity costs, among others. The second element is the variable cost, which are expenses that vary according to the volume of production or sales. Examples of variable costs are raw material, packaging, sales commissions, among others. In addition, it is necessary to consider the unit sales price of the product or service and the expected sales volume. Based on this information, it is possible to calculate the break-even point. There are two ways to calculate the break-even point: in physical units or in monetary values. In the calculation in physical units, the fixed cost is divided by the unit selling price minus the unit variable cost. The result is the number of units the company needs to sell to break even. In the calculation in monetary values, the fixed cost is divided by the unit contribution margin, which is the difference between the unit selling price and the unit variable cost. The result is the amount of money the company needs to make to break even. It is important to point out that the break-even point is not a goal to be reached, but rather a reference for the company to understand from which sales volume it will start to make a profit. From that point on, each additional sale will represent a profit for the company. Furthermore, the break-even point can also be used as an analysis tool to make strategic decisions. For example, if the company is below the break-even point, it means that it is making a loss and needs to take measures to increase sales or reduce costs. On the other hand, if the company is above the break-even point, it means that it is making a profit and can invest in improvements or expansion. In summary, the break-even point is a very important indicator in business accounting. It represents the point in time when revenues equal total costs and expenses, and can be calculated in both physical units and monetary values. In addition to being a reference for the company to understand from which sales volume it will start to make a profit, the break-even point can also be used as an analysis tool to make strategic decisions.