# How to build a break-even schedule: a step-by-step instruction. It is known that the output of production involves investment in its production and sales. Each entrepreneur, intending to create good, pursues the goal - is to generate profits from the sale of goods / services. The break-even chart helps to see in profit and in profit terms the profit and the volume of products in which profit is zero, but all costs are already covered. Accordingly, by crossing the break-even point, each subsequent unit of good is beginning to generate profit.

It is known that output means the investment of funds in its production and sale. Each entrepreneur, intending to create a blessing, aims at earning profit from the sale of goods / services. The break-even schedule helps to see in revenue and in kind revenue and the volume of products in which profit is equal to zero, but all costs are already covered. Accordingly, by crossing the break-even point, each subsequent sold unit of good starts to bring profit to the enterprise.

## Data for the graph

To compose sequential actions and get the answer to the question: "How to build a break-even schedule?" An understanding of all the components necessary to create a functional dependence is required.

All expenses of the company for the sale of products constitute gross expenses. The distribution of fixed costs and variables allows for the planning of profits and underlies the definition of a critical volume.

Rent of premises, insurance premiums, depreciation of equipment, remuneration, management - are components of fixed costs. They are united by one condition: all listed costs are paid regardless of the volume of production.

Purchase of raw materials, transport costs, labor remuneration of production personnel - elements of variable costs, the size of which is due to the volume of produced goods.

Revenue is also the source information for finding the break-even point and is expressed by the product of the volume of sales at the price.

## Analytical method

There are several ways to determine the critical volume. An analytical method, that is, through the formula, can also be found a break-even point. The graph in this case is not required.

*Profit = Revenue - (Constant Expenses Variable Expenses * Amount)*

Determination of break-evenness is performed provided that the profit is zero. Revenue is a product of sales volume at a price. A new expression is obtained:

*0 = Volume * Price - (Constant Expenses Variables * Volume),*

After elementary mathematical procedures, the following formula is obtained at the output:

*Volume = Constant costs / (Price - Variable costs).*

After substituting the output data into a received expression, the amount that covers all the costs of the realized benefit is determined. You can go from the opposite, asking profit is not zero, and the target, that is, the one that plans to get an entrepreneur, and find the volume of production.

## Graphic method

Forecast the main indicators of the enterprise, taking into account the immutable conditions on the market, capable of such an economic instrument, as a break-even schedule. Key steps:

- There is a dependence of sales volumes on revenue and expenditure, where the X-axis displays data on the volume in kind, and for U-revenue, the cost in cash equivalents.
- Construction in the resulting system is straight, parallel to the X axis and corresponding to constant costs.
- Depending on the variable costs, coordinates are set. Direct goes up and starts from scratch.
- The gross direct costs are plotted on the schedule. It is parallel to the variables and its origin takes on the ordinate from the point from which the construction of constant costs began.
- Construction in the system (X, Y) of the line, which characterizes the proceeds of the analyzed period. The proceeds are calculated on condition that the price of the products does not change during this period and release is carried out evenly.

The intersection of direct revenues and gross expenditures projected on the X axis, and is the desired value - the point of break-even. The graph of the example will be discussed below.

## Example: how to build a break-even schedule?

An example of constructing a functional dependence of sales volumes from revenue and expenses will be carried out using the Excel program.

The first thing to do is to reduce the revenue, expenses, and sales figures into a single table.

Next, you should call the "Marker Schedule" function through the toolbar using the Insert tab. An empty window will pop up, the right mouse button selects the data range that includes the entire spreadsheet cell. Changes the signature of the X axis through the selection of data that relates to the volume of output. After that, in the left column of the "Data Source Selection" window, you can delete the output, since it coincides with the X axis. An example is shown in the figure.

If you design a point of intersection of direct revenues and gross expenditures on the axis of abscissa, then the volume of about 400 units is clearly indicated, which characterizes the break-even nature of the enterprise. That is, selling more than 400 units of production, the firm starts to work in a plus, earning a profit.

## Example by formula

Output data of the problem are taken from the table in "Excel". It is known that production is cyclical and amounts to 150 units. Issue answer: constant costs - 20 000 den.ed .; variable costs - 6000 days. unit Revenue is 13,500 den. unit It is necessary to calculate the break-even.

- Determination of variable costs per issue of one unit: 6000/150 = 40 days. unit
- The price of one realized good: 13 500/150 = 90 days. unit
- In physical terms, the critical volume: 20,000 / (90 - 40) = 400 units.
- In value, or revenue in this volume: 400 * 90 = 36,000 den. unit

The break-even schedule and the formula have led to a single solution to the task - the definition of the minimum volume of production, which covers the cost of production. Answer: 400 units need to be released to cover all costs, while proceeds will amount to 36,000.00 den. unit

## Limitations and construction conditions

The ease of estimating the level of sales, in which reimbursed costs for the sale of products, is achieved due to a number of assumptions made for the availability of the model. It is believed that the production and market conditions are perfect (and this is far from reality). The following conditions are accepted:

- Linearity between output and cost.
- The entire production volume is equal to that sold. There are no stocks of finished products.
- Prices for goods do not change, as variable costs.
- Lack of capital costs associated with the purchase of equipment and the start of production.
- A specific time period is adopted, during which the amount of fixed costs does not change.

Due to the above conditions, the break-even point, the example of which finding was considered, is considered the theoretical value in the projection of the classical model. In practice, calculations for multinational production are much more complicated.

## Disadvantages of the model

- The volume of sales is equal to the volume of production, and both quantities change linearly. Not taken into account: behavior of buyers, new competitors, seasonality of production, that is, all conditions affecting demand. New technologies, equipment, innovations, etc. are also not taken into account when calculating output volumes.
- The calculation of a break-even position applies to markets with stable demand and a low level of competition with competitors.
- Inflation, which may affect the cost of raw materials, leases, is not taken into account when establishing a single product price for the period of a non-finite analysis.
- The model is inappropriate in the use of its small enterprises, in which the sale of products is unstable.

## Practical use of break-even point

After the company's experts, economists and analysts have made calculations and built a break-even schedule, external and internal users are drawing information to make a decision on further company development and investment.

Main uses of the model:

- Calculation of the price of the product.
- Determining the volume of production, which ensures the profitability of the enterprise.
- Determination of the level of solvency and financial reliability. What output is farther from the break-even point, so the stock of financial strength is higher.
- Investors and creditors - an assessment of the development and solvency of the company.