Break Even Point

Break Even Point

When you started doing business one of the things you would have considered is Break Even Point. You would want to know when you could take back the invested money in order to make more money. Break Even Point in Cost Accounting meaning a stage where you will reach a point of Zero. It means the point where you Total cost curve and Total Return curve meets. Total Cost is Total Fixed Cost and Total Variable Cost taken together.

The formula is  B.E.P = Fixed Cost/Contribution per unit. Contribution is (Revenue – Costs) per unit.

When you have requested a bank for a loan they would have asked for a forecast. In that forecast they would want to know when your business would break-even. A very common definition of Break-Even is: “The level of sales necessary to cover all variable and fixed expenses and neither make a profit or a loss”.But I believe the definition of Break Even Point (B.E.P should be “The level of sales necessary to cover all variable and fixed expenses plus an amount of Profit.  What is the use of reaching Break Even Point if you are not making profit? You are not running a charity. So please make sure to add a certain amount that is required. This amount will justify the time and effort that you have put in.

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