BEP or Break-Even Point is a point where income equals capital spent, no loss or profit occurs. The total profit and loss are at position 0 point break-even point which means that at this point the company does not experience a loss or profit. This can happen if the company in its operations uses fixed costs, and sales volume is only enough to cover fixed costs and variable costs. If sales are only sufficient to cover variable costs and some fixed costs, the company suffers losses. Instead, it will obtain a profit if sales exceed variable costs and fixed costs that must be spent. In the meantime, before we continue, if you require a licensed bookkeeper to assist your company, we recommend you call the best Gold Coast Xero Bookkeeper.
BEP is very important for a company, besides that break-even point is also often used by stock actors. Stock calculations made using the BEP method when someone is buying and selling shares can analyze when the right time to buy (call) and when to sell (put).
The Break-Even Point concept
The calculation or closure of a BEP depends on the underlying concepts or assumptions used therein. According to Susan Irawati in her book “Financial Management” the basic assumptions used in the BEP are as follows:
1. Costs incurred in a company must be classified into fixed costs and variable costs.
2. Variable costs that totally change according to changes in volume, while fixed costs do not change in total.
3. The amount of fixed costs does not change even though there are changes in activities, while the fixed costs per unit will change.
4. The selling price per unit is constant during the analyzed period.
5. The number of products produced is considered always sold out.
6. The company sells and makes one type of product if the company makes or sells more than one type of product, the “balance of sales” of each product remains.
Break-even analysis is the basis of all break even methods. The Break-even analysis function to determine the volume of sales will result in profits or losses.