Understanding BEP : Formula, Components, Benefits, and Examples

BEP Definition

What is BEP (Break Even Point)? In accounting and business economics, the definition of BEP is a certain point where expenditure / income and income are in a balanced position (break-even) so that there is no loss or profit.

Another opinion says that the understanding of BEP is a situation where the company's operating activities do not suffer losses and also do not get a profit (break even) because the amount of costs incurred is equal to the amount of income.

Break Even Point analysis technique is used by a company to analyze the projections of how many units are produced or how much money must be received so that the company is at a break-even point or return on capital.

BEP component

Break Even Points (BEP) consists of several components in it. The BEP components are as follows:

1. Fixed Cost

Fixed costs are constant costs if the company carries out production activities or does not carry out production. Examples of fixed costs include; labor salary, machine depreciation costs, equipment costs, and so on.

2. Variable Cost (Variable Cost)

Variable costs are unit costs where they are dynamic depending on the production volume action. If planned production increases, the variable costs will increase. Examples of variable costs; electricity costs, raw material costs, plastic bag costs, and so on.

3. Selling Price

The selling price is the selling price set per unit of goods or services that has been produced by the company.

The purpose of BEP

Every company certainly wants to make a profit from its business activities. To achieve this there are a number of things that can be done related to Break Even Point, as follows :

1. Pressing production and operational costs to the lowest possible level without putting aside quality and quantity so that the company can maintain the product price level.
2. Determine the price of the product in full calculation so that the price of the product matches the desired profit.
3. Increase the volume of activities as much as possible.

The three points above must be done simultaneously because each has an impact on the overall operation of the operation. That is why the profit structure of a company is often described in Break Even Point (BEP) to facilitate understanding the relationship between costs, volume of activities, and profits.

BEP formula

There are two kinds of formulas that can be used for Break Even Point analysis, as follows :

1. BEP in the Unit

BEP = FC / (P - VC)
In this formula we can find out how many units of goods / services must be produced to break even.

Information :

BEP: Break Even Point
FC: Fixed Cost
P: Price per unit
VC: Variable Cost

2. BEP in Dollars

BEP = FC / [1 - (VC / S)]
In this formula we can find out how much Rupiah must be received to get a break-even point. Note: calculations [1- (vc / s)] are also referred to as Margin Contributions Per Unit.

Information :

BEP: Break Even Point
FC: Fixed Cost
VC: Variable Cost
P: Price per unit
S: Sales Volume

That is a brief explanation of the meaning of BEP (Break Even Point), BEP formula, components, benefits, and examples of simple BEP calculations. Hopefully this article is useful for you.