The Balance, from Latin aequilibrĭum, is he condition where two conflicting forces compensate and destroy each other. Balance is the harmony between diverse things and equanimity.
Breakeven It is a concept of the finance which refers to sales level where fixed and variable costs are covered. This assumes that business, at its breakeven point, it has a profit that is equal to zero (it does not earn money, but also does not lose).
At breakeven, therefore, a company manages to cover its costs. By increasing your sales, you will be able to rise above the breakeven point and obtain positive benefit. Instead, a drop in your sales from breakeven will generate losses.
The estimation of the breakeven point will allow a company, even before starting its operations, to know what level of sales it will need to recover the investment. In the event that it does not cover the costs, the company will have to make modifications until it reaches a new equilibrium point.
In this case, if what a company wants to know is the number of units of its product or products that it must sell to reach the aforementioned breakeven point, the operation is very simple. You must divide what the fixed costs are by the result of subtracting the unit variable cost from the unit sales price.
If, on the other hand, what you want is to know that balance point through the calculation for sales, the formula would be the following: you have to divide the fixed costs by 1 – the result of dividing the total variable cost by the total sales.
An equally interesting way to calculate and be able to see clearly where the breakeven point of a company in question is is by using a graph in question. In this way, the X axis would establish the units to be produced and sold, while the Y coordinate axis would represent the value of income (sales), costs and expenses.
To find its breakeven point, the company must know what its costs are. This calculation should consider all disbursements (that is, all the money out of the company’s coffers). It is also necessary to classify costs into variables (they vary according to the level of activity) and fixed. The next step is to find the unit variable cost, which is the result of dividing between the number of units manufactured and the units sold. Then you can apply the breakeven formula, check the results and analyze them.
In this sense, it is important, as recognized by experts in finance, that within what are costs, special attention is paid to the so-called indirect manufacturing costs. Why? Because possibly in them there will be a series of really important and fundamental variable costs when it comes to finding the equilibrium point.
Those cited manufacturing costs as well as labor and raw material are three of the vital elements to keep in mind to make exact calculations.