How to determine the threshold of profitability

The threshold of profitability or break-even point, represents the net profit of this size, when is full coverage of all costs when profit is zero. The break-even point revenue can change, which entails profit or loss.

Instruction

1. To determine the threshold of profitability is possible in two ways: analytical and graphical.
   The analytical method of calculation of this indicator should follow the following formulas:
   The profitability threshold = Spost/Cal shaft.margin
   
   Where Spot – constant expenses,
   
   Cal shaft. Margin – the gross margin.
   Shaft. Margin = – Spar,
   
   Where is revenue,
   
   Sper – variable costs.
   Cal shaft.margin = Val.margin/V.
2. Of these formulas you can get one complete for finding the threshold of profitability:
   
   The profitability threshold = Spot*In/(- Sper).
3. Using this graph, the threshold of profitability find. On the OY axis tick fixed costs. Draw a line of constant costs, parallel to the OX axis.
4. On the x-axis – the volume of sales. Select any point on the OX axis. For the selected sales calculate the fixed and variable costs. Build direct, satisfying pre-defined value.
5. Again make a note of any point of sales on the x-axis. For this value, find the sum of revenues and also build directly on these values.
6. On the chart the profitability threshold (break even point) will be a point in the intersection of the straight lines constructed pursuant to paragraph 4 and 5 of this manual. Break shows at what value revenue and total cost profit of the enterprise does not have and is equal to zero.