# Break-even point graph: how to build

Any businessman tries to determine when histhe company will stop making losses, and will start earning, working out the means invested in it. The break-even point is a good tool for those who want to see the ratio of revenues and costs of the enterprise. For a better understanding, you can build a break-even point chart, which will clearly show the rate at which revenue grows, fixed and variable costs, and see at what time the cash flows will become positive.

## Determination of breakeven point

This parameter shows how muchproducts must be produced by the company in order to cover all of its costs at a certain price, while the entrepreneurial profit must be zero.

If the enterprise sells more goods, it will make a profit. In the case when the quantity of sold products is below the breakeven point - the entrepreneur works at a loss.

## The natural expression of the parameter

The calculation can be made in two ways: in money terms and in kind. This indicator in money terms has a second name - the threshold of profitability - the total revenue of the enterprise, which covers the total costs. It is often used to assess the performance of family farming enterprises. Also, thanks to the profitability threshold, you can calculate the minimum price at which all costs will be fully covered.

In order to determine the quantity producedthe company of products, you should use the indicators of general and variable costs, as well as prices. If you plot the break-even point, you can skip the price and replace it with revenue.

Let us imagine that the total fixed costs are the Hypostasis; variables by 1 unit. products - Ip; cost of 1 unit. "Tsed." Then the formula takes the form: Istost / (Tsed-Ip).

The difference between variable costs per unit of output and price is called marginal revenue per unit of output.

## Profitability threshold

The calculation of the profitability threshold is more complicated thanbreak-even points in physical terms. To calculate this indicator, you should take into account fixed costs (TFC), revenue (R) and general variable costs (TVC). The difference between revenue and variable costs is marginal revenue (MR).

Using these indicators, it is necessary to determineMarginal revenue ratio (KMR) is the ratio of marginal revenue to revenue. The profitability threshold is the ratio of total costs to the coefficient of marginal revenue - TFC / KMR. In some cases, it is more convenient to avoid calculating this coefficient. Then the formula can be represented as follows: TFC * P / MR.

## Break-even point chart

Break-even point value in company planningIt is difficult to overestimate, because its increase can mean difficulties in making a profit. It is important to note that the value of the parameter will change not only because of rising costs or prices for products, but also in the case of expansion of production. In order to see in more detail the relationship between costs and production volume, it is necessary to plot the break-even point. It is actively used in the modern economy.

To understand how to plot the break-even point yourself, you should first try to understand the theory and understand what factors affect this value.

The abscissa should display the numbersold goods. The revenue of the enterprise is reflected on the ordinate axis. Next, graphs of variables and fixed costs should be depicted. The amount of fixed costs does not vary depending on the number of sales and products sold, so their schedule will be represented by a line parallel to the abscissa. The sum of the variable costs is proportional to the sales volume, so this type of cost is shown as a straight line that leaves point 0 and grows along with the increase in the quantity of output.

On the breakpoint, the break-even points must be reflectedtotal costs. To do this, you need to summarize the variables and fixed costs. Therefore, the break-even points are displayed in parallel with the variable costs by the line. It, in turn, originates where there are constant costs.

The last step in plotting is to show the company's income line. On the chart, the break-even point is at the point where revenue crosses the line of common costs.The economic meaning of the break-even point is the revenue at which the profit is zero or the revenue can cover all the company's fixed and variable costs.

## Breakeven point graph in Excel

Calculation of the breakeven point on the calculator in our time, few people engaged in a professional level. This can be done in Excel. In it, you can create a schedule.

To do this, you need to write down revenue and generalCosts for different volumes of production. Then calculate the desired value. In order to build a graph, you should select all the above mentioned data, and then create the necessary diagram (Insert / Diagrams / Graph). For clarity, it is better to use a chart with markers.