Break Even Point (BEP) Definition, Analysis, How To Calculate, Examples

ACCOUNTING, ACTIVELYSHARE.COM — It can be said that almost all entrepreneurs know the term BEP (Break Even Point). But do you know how to calculate BEP?

As a business owner, you must know how to calculate BEP because it is very useful in  running a business and developing it. The following is an explanation, how to calculate BEP and examples of questions to calculate BEP that we have presented for you.

BEP calculation must exist in producing a product or running a project

Definition of BEP

BEP is the break-even point in a business. In other words, BEP is the point at which the income earned is equal to the capital expended. So the company that is at the BEP point is a zone that does not experience loss or profit in running its business.

The purpose of calculating BEP is very important because in addition to being used to determine sales targets, BEP (Break Even Point) can also be a guide in using company funds to match the budget.

By applying the correct method of calculating BEP, the company can measure whether fixed costs, variable costs and other costs are as desired.

A company certainly does not want to be in a BEP condition for too long, therefore how to calculate the correct BEP (Break Even Point) must be understood by company management and related divisions. After that the company can set a target to immediately achieve profit.

Because the main purpose of running a business is profit but of course with attention to business ethics so that the competition that occurs remains healthy.

Break Even Analysis

In the BEP calculation, the term break even analysis is also known (break even analysis) which is the basis of all break even methods. The purpose of the break even analysis is to determine the sales volume will generate profits or losses. In general, there are 3 benefits that form the basis of break even analysis, namely:

1. To provide information on the amount of investment required by the company in a project or production in order to offset the initial expenditure.

2. In order to be able to inform the margin value which is a limiting step so that the company does not suffer losses.

3. To be widely used, both in stock trading analysis and analyzing the budget of various projects carried out by the company.

By analyzing the break even point on a project, the company has guidelines in determining the selling price, setting margins, monitoring expenses, and so on.

Whatever project you are working on, whether it’s producing a new product, starting a minimarket business or opening a restaurant, BEP (Break Even Point) calculation is necessary before starting it.

BEP Calculation Components

In calculating BEP, there are several components used, namely:

• Fixed Costs

This cost will remain the same even if the production process is not carried out. Examples are the cost of renting a place, employee salaries and so on.

Please read What Is Fixed Cost? Check Out The Definition And Examples In The Company.

• Variable Cost (Variable Cost)

Variable costs are dynamic in accordance with the volume of production. The bigger the volume, the higher the cost. For example, sales commission fees, electricity costs to run machines and so on.

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