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.

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).

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.

Note

Note that the higher the sales, the fewer fixed costs you have per unit of output, but the amount of variable costs stays the same.

Useful advice

In the case of sales of less than the threshold point, the company incurs losses when sales volume is greater than the threshold point, the enterprise makes a profit.

To calculate the threshold of profitability for individual products or services.

To calculate the threshold of profitability for individual products or services.

# Advice 2 : How to calculate the threshold of profitability

**The threshold**

**of profitability**is the amount of the revenue in this value, when is covering all costs completely when profit, which is equal to zero. It is also called break-even point. At this point, revenue can vary in size, which in turn affects the occurrence of loss or profit.

Instruction

1

Can calculate the threshold

**of profitability**by two ways: analytical or graphical. In turn, the analytical method of calculation of this indicator, you must use the following formula:**the Threshold****of profitability**= total fixed costs / gross margin.2

Define the value of the gross margin, if you have already calculated figure. To do this, use the formula: gross margin = revenue – variable costs size. Then calculate the gross margin, which is equal to gross margin divided by revenue.

3

Can use a formula to calculate the threshold

**of profitability**, which is formed of all the above:**the Threshold****of profitability**= total fixed costs*the revenue amount (revenue - sum of variable costs).4

Find the value of the threshold

**of profitability**with the help of graph. To do this, draw a graph. Then, on the OY axis, list the fixed costs. Then draw a line which shall be parallel to the x-axis and mark on it the fixed costs.5

Determine on the x-axis point of sales. Next, select a point on this axis and for the selected amount of sales, calculate the value of the sum of fixed and variable costs. Then build a straight line, which should satisfy the established values.

6

Note at least one other point of sales on the x-axis. Then determine the revenue amount for the value. Then also build a straight line according to the obtained values.

7

Please note that on the chart the break-even point or threshold

**of profitability**will be the point that you have turned by two intersecting lines built earlier. Properly constructed break-even chart can enable you to correlate the amounts of all expenditures and revenues from product sales.