Breakeven Point (BEP)

What is the break-even point?

In business accounting, the break-even point alludes to the amount of revenue important to cover the total fixed and variable expenses incurred by a company inside a predetermined time span. This revenue could be stated in monetary terms, as the number of units sold or as hours of services gave.
The break-even point additionally can be considered as the point in time when revenue conjectures are precisely equivalent to the estimated total costs. This is where a company's losses end and its profits begin to gather. Right now, a project, product or business is monetarily practical.

More profound definition

In spite of the fact that it doesn't seem like a very remarkable business goal, breaking even is an important point of reference for finance experts. A company or project's break-even point gives a significant benchmark that assists with growing long-term business plans. Knowing your break-even points for key areas like sales, investment reimbursements, production and operations assists you with determining pricing of products, debt servicing and other operational parts of your business. Assuming you know your break-even points, seeing the effect of various business strategies is simple.
Possible investors in a business not just need to know the return to anticipate on their investments yet additionally the point when they will understand this return. This is on the grounds that a few companies might require a very long time before making money, frequently losing money in the initial not many months or years before breaking even. Thus, break-even points are an important part of any business plan introduced to a possible investor.

Break-even point model

ABC Company works out that its fixed costs comprise of leaders' salaries, depreciation of its assets, property taxes and its lease. The company's fixed costs of production of its primary product, the gadget, amounts to $60,000. There are additionally variable costs engaged with the production of the gadget, including factory labor, raw materials and sales commissions. The company works out that these variable costs amount to 80 pennies for every gadget. Every unit is sold at $2.
With this data within reach, it is feasible to work out the break-even point for production and sale of ABC Company's gadget by utilizing the formula below:
$60,000/($2 - $0.80) = 50,000 units
The figure calculated above basically means that ABC Company needs to make and sell 50,000 of its gadgets to cover all their fixed and variable expenses. By making this number of sales, the company creates no gain. It just breaks even.

Features

• The breakeven point is the level of production at which the costs of production equivalent the revenues for a product.
• In accounting, the breakeven point is calculated by separating the fixed costs of production by the price per unit minus the variable costs of production.
• In investing, the breakeven point is supposed to be accomplished when the market price of an asset is equivalent to its original cost.

FAQ

What Is a Breakeven Point?

A breakeven point is utilized in various areas of business and finance. In accounting terms, it alludes to the production level at which total production revenue equals total production costs. In investing, the breakeven point is the place where the original cost equals the market price. In the mean time, the breakeven point in options trading happens when the market price of an underlying asset arrives at the level at which a buyer won't cause a loss.

How Do You Calculate a Breakeven Point in Options Trading?

Consider the accompanying model wherein an investor pays a $10 premium for a stock call option, and the strike price is $100. The breakeven point would approach the $10 premium plus the $100 strike price, or $110. Then again, on the off chance that this were applied to a put option, the breakeven point would be calculated as the $100 strike price minus the $10 premium paid, amounting to $90.

How Do You Calculate a Breakeven Point?

Generally, to ascertain the breakeven point in business, fixed costs are isolated by the gross profit margin. This delivers a dollar figure that a company needs to break even. With regards to stocks, in the event that a trader bought a stock at $200, and after nine months it came to $200 again subsequent to falling from $250, it would have reached the breakeven point.