Break-even analysis of the enterprise. Break-even analysis of production

Date:

2020-07-03 01:02:19

Views:

498

Rating:

1Like 0Dislike

Share:

Table of contents:

Break-even Analysis – the process by which a company can decide how much you want to produce and sell finished products. This allows you to determine when you can cover the expenditure.

With regular analysis of these indicators it is possible to maintain its position in the market of goods and services and to feel confident in a competitive environment. And this will help the organization not only stay afloat, but to rise in an environment of other firms.

Profitability

To conduct break-even analysis you will need to have a list of data that pertain to the basic. The first step is to accurately identify required and recurring costs. Should be included the expenses on payment of taxes, purchase of raw materials to the shop floor, for production, wages of employees, operation of equipment, advertising campaigns, packaging of finished products, payment of utility bills, rental of land or premises, and more.

financial break-even analysis

In the process of break-even analysis is the comparison of all costs with revenues from sales of goods and services. The goal is to select a specific period, calculate the amount of income from sales, to calculate all the costs and compare whether the income to fully cover expenditure. With the right calculation is clearly noticeable, how many units for a certain period of time you need to make to cover costs. You can also calculate how much product you need to make to just break even and make a profit.

Recommended

Staff evaluation: system and methods

Staff evaluation: system and methods

Personnel Assessment allows you to identify how competent the employees involved in the enterprise, and it is the performance of their work – the most significant factor affecting the efficiency of the company. To clarify the impact of performa...

How to start your own business: important aspects.

How to start your own business: important aspects.

Many people, tired of working for someone else, are increasingly thinking about how to start your own business. Someone wants to open a salon, someone store, and someone enough and vegetable stalls. Before you throw in the pool with his head, it is i...

business activities. its essence and basic functions

Business activities. its essence and basic functions

The Entrepreneurial activity of the citizen – is undertaken at your own risk and independent activity, which aims to systematically profit through the sale of works, goods, services, use of the property. The citizen engaged in such activities, ...

To a break-even analysis is even beneficial for some reasons:

  • The ability to make predictions;
  • If the result you can make adjustments in the work process;
  • You can produce new goods using the old indicators;
  • Can be used as a starting point and to make predictions.

Break even enterprises

The conduct of the organization business owner should know the situation with the financial situation of its production. Such knowledge many tend to relate more to the assumptions than to accurate calculations. Most entrepreneurs rely on their intuition, put forward assumptions and guesses. The whole analysis is based on calculations of cash from the cash register. Rarely what owners do break-even analysis of the enterprise. Some develop business projects. Data were obtained on its basis will not be reliable, as all business plans are made by the same template, and they are used to attract investors. These errors tend to allow small businesses, much less frequently they are found in medium-sized companies. Many believe that the break-even analysis of the enterprise – is a tool that works exclusively with finances, and it can be only competent economists and accountants with experience. But this is absolutely not true. Such calculations are required by the entrepreneurs, the people who are responsible and are accountable for all decisions.

The break-even point is a financial situation in which costs can be fully compensated for the manufactured and traded products. The profit in this case is zero. The analysis must be received answers to the questions:

1. What size of income you need to have that all costs could be blocked?

2. How much should be made of products or services rendered to cover costs of the organization?

This analysis does not end there.

To calculate the costs should be divided into two categories:

1. Mandatory spending, which are available every month

2. Recurrent expenditures.

Mandatory costs include all the costs of the organization that do not depend on the services provided.

analysis of break-even business

This could include all costs that are constant every month. For example, the salary of employees, payment of taxes, insurance premiums, payment of utility bills and much more.

To periodically include all the costs that relate entirely to production. For example, the purchase of necessary materials and raw materials, transportation costs, salaries of employees who work by the piece. This could include all costs necessary to manufacture one unit of the commodity.

In the preparation of break-even analysis of the organization's activities account for data that do not change over time. In fact, everything is different and there are many unforeseen circumstances that can adversely affect the enterprise. If the business owner wishes to obtain accurate calculations, up to cents, then this option is not used. As the analysis to obtain the dependence from that, how the amount of profit in relation to costs.

The analysis of break-even production can be seen as independent from each other profit, net income and expenses in a certain period of time. The purpose is to clarify the fluctuations of Finance in case of variation in production activity.

Break-even – it is a state in which the organization does not receive profit and shall not haveloss, it works out to zero. To obtain the net profit is required to obtain income from the sale. Profit is expressed in the number of manufactured products, which must be implemented and subsequently cover all costs of the organization.

The objective of break-even analysis of production includes the search break-even point, i.e. such condition of the organization at which you can produce a minimum of finished products and work in zero – to cover all costs. Thus, you do not have income and losses. The size of the resulting income enables the purchase of materials and raw materials for production and to pay a mandatory monthly expenses.

marginal analysis break-even analysis

Used in the methods

For the purposes of accurate analysis and search for the critical point is to know what factors can affect profitability.

One of the factors of production volume. In cases where the production figures remain unchanged and are not modified, the analysis was done accurately. Low level suggests that the organization is a success on the market. To break even can be affected by other factors. For example, the number of employees, construction work and much more.

In practice, there are several methods of break-even analysis, but the most popular are three:

  • Mathematics,
  • Gross profit;
  • Graphic.

Math is the way of control

It is used to determine the break-even organizations using formulas. To search for profit use a lot of formulas, but among them are the one that is currently most popular. It is expressed in the following way: the amount of profit can be found after the profits of the organization to take away all the costs, which include mandatory and periodic expenses.

The Method used to compute the gross profit is also called marginal income. This method is an alternative in case you can't use the mathematical option. In this case, it is customary to use the following formula for finding profit margin required of the sum of the costs to improve profits.

Graphical method

A Graphical method tries to find a point which will be profitable for this graph. On this note the income and expenses. Each indicator is marked as lines. The point at which these lines intersect is considered break-even.

These methods are used to conduct research in a certain period of time. For long-term use is not recommended.

analysis of break-even production

Marginal analysis

In order to conduct activities at a loss, you need to find a point which is breakeven. The ideal is the moment when the organization receives income. But for this to be determined an equilibrium in which the proceeds will cover the cost, and the company will go to zero.

All payments should be net of VAT and tax. This is due to the fact that there are cases where part of the costs taxed, and the rest not. Therefore, in calculations it is better not to take into account data, which includes taxes – this will avoid errors in the analysis.

To search For the required data suitable margin break-even analysis, in which a division is mandatory and recurring expenses.

In the process of activities, all costs can be attributed to the permanent category only conditionally. This is due to the fact that every year prices are rising, therefore, increase and fixed costs. Thus, if you add up all costs we get total cost. To determine the profit need of the size of the resulting income to deduct expenses.

If this formula to convert and the fate of the division of costs, to calculate the net profit will need of the amount of profit to deduct the cost of mandatory and periodic.

Calculate the marginal revenue in that case, if the income of the organization to deduct periodical expenses. The obtained income is required to cover the mandatory expenditures and revenues. Thus, mandatory spending must not exceed the margin of income. Such income should not be negative. All sold goods will increase less, which works at the moment, the company.

Financial analysis

Financial break-even analysis – a method of studying the financial data and activities of the company for adoption of its senior staff.

determination of break-even point

These tests are carried out in specially designated programs. In the process of doing quantitative calculations, which are based on different indicators and the evaluation and comparison of the data with other organizations. In the financial analyses included:

  • Analysis of assets;
  • Solvency of the organization;
  • The stability of the market of goods and services.

With his help, can be identified this moment as bankruptcy. They are used by banks for the loan, or the chief accountant when making statements.

The Foundation of all financial analysesare the coefficients. Among them are:

1. The ratio between capital and assets of the organization.

2. The assets are in circulation, to liabilities at a specific point in time.

3. The level of profitability of capital owned.

4. The level of profitability in the sale of goods and services.

To obtain all necessary information required for analysis, in most cases, use the data their reporting accountant. If you want to make a deeper and more detailed calculations that involve data from financial indicators. For search terms that will become break-even, use of accounting data and manufacturing accounting.

Project Analysis

Break-even Analysis of the project is an important element in the evaluation of projects. The investor must have information about at what point the trade would break even and how much you need to manufacture products. For the calculations use periodic, mandatory, and total costs. Due to the constant growth of prices depends on the cost of rent, utilities and other things, it is considered that fixed costs can not be. Therefore, for the different time frames the analysis should be performed again. Break-even analysis of products is performed only for one type of goods. If a plant produces multiple products, the calculation of indicators should be for each case individually. It should take into account the fact that even if the received data satisfy all the preferences and wishes of the investor, it is quite difficult on this basis to decide whether the project is effective or not. What objectives are pursued in the analysis process?

Evaluation of the analysis of profit and break-even is only possible in case, if taken short period. Also must comply with certain conditions and the production organization must exist with a limited capacity. To put it in other words, the organization should not in this period to expand and install new equipment for work, open up additional production lines and offices.

analysis of break-even activity

In such cases, conducting a breakeven analysis, you can solve a number of tasks, for example:

  • To find the point which will then become profitable for the organization.
  • To identify how much should be produced finished products for further sale to this point was reached;
  • What value should be set for the goods and services for opportunities to increase demand and achieve the desired income;
  • What kind of production technology is to choose to improve effectiveness;
  • Provides the ability to generate production plan, which will be optimal.

Thus, the calculation of break-even analysis in the organization is considered one of the variants of the study of the demand for goods and services in the current economic situation in the country.

What conditions needs to be tested?

For the qualitative analysis of the breakeven point needs to be observed certain conditions and ratios. They are as follows:

  • Profit from sales and the amount of periodic costs fully depend on the capabilities of the enterprise;
  • Performance level should remain unchanged;
  • During the period when the analysis, on production and the organization should not be any changes to prices for finished goods and purchased material;
  • The whole structure of production is not changed.
  • Should be possible to accurately determine the amount of mandatory and recurring costs;
  • By the time the analysis is complete, the company must leave no resources for further production, or they must be in a minimum amount.

If the process be not complied with one of the points, it is possible with high probability to an incorrect result. If you stick to the basics of break-even analysis, you can do everything right.

methods of break-even analysis

What does it matter to companies?

Find the point which is break-even, is only used in case if the planning is short-term. If there is a search this point, it does not mean that the organization plans to operate in zero, no income. In most cases, the break-even point looking for, only to clearly see the lower level of sales of finished products.

After this point will be calculated, it is possible to obtain a uniform balance between the amount of income and all expenses. You can then have a clear idea how many more units to produce to achieve your desired profit. If all is done without errors, you can highlight the main factors that help in achievement of goals. Thus, the break-even point helps the organization to develop and receive income from conducting activities.

Every businessman or person far from financial Affairs, understands that the break-even - the key to success of the enterprise. Organization that is not profitable, simply can not exist, and to obtain analysis is simply necessary.


Article in other languages:

ZH: https://tostpost.com/zh/business/38821-break-even-analysis-of-the-enterprise-break-even-analysis-of-productio.html






Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

Comments (0)

This article has no comment, be the first!

Add comment

Related News

Swine disease: symptoms and treatment

Swine disease: symptoms and treatment

Pig — the animals are quite hardy and undemanding in care. Sick they are relatively rare. But, of course, sometimes health issues arise and these farm animals. In this case, the pigs usually begin to lose weight, and sometim...

How to care for strawberries: tips and features

How to care for strawberries: tips and features

Strawberries — beloved by many berry grown almost every summer cottage. To care for this popular garden plant is relatively unpretentious. However, the technology of cultivation of this plant has some of its features. About ...

How to open a hair salon from scratch: a step by step guide

How to open a hair salon from scratch: a step by step guide

today, there are a large number of directions for business. Scope of hairdressing services today more than ever in demand. After all women at all times want to look chic, and men to maintain a neat appearance. For this reason, the...

How to open a pawn shop? What do you need?

How to open a pawn shop? What do you need?

every year the demand for the services of pawnshops is growing. This is due to many factors: falling solvency of the population, the decline in wages, the tightening of the banks credit policy, growth of prices for all product gro...

Full Registration Of Companies In England, On Favorable Terms

Full Registration Of Companies In England, On Favorable Terms

England is a very suitable country for offshore company registration. In addition, in this country, you can easily go to specialists with a diploma and just to find work, England also offers a good environment for people that want...

How to open your clothing store for women: practical advice.

How to open your clothing store for women: practical advice.

Clothing & ndash; one of the most popular and purchased goods in our country. The seasons change, weather happens quite often, not to mention the fashion trend, therefore the majority of citizens go shopping for new outfits at...