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Break-even point (BEP) for very similar selling price and variable cost products

Break-even point (BEP) for very similar selling price and variable cost products

Break-even point (BEP) is point (unit or dollar) that makes company gets zero profit. It means that revenue equals expense, and expenses include total variable costs and total fixed costs.

Break-even point (BEP) can be found for single product (company sells only one product) or multiple products (company sells many products). In practice, companies usually purchase and sell many products. For example, ABC Company sells computer, LCD, printers, scanners etc.

How can we calculate break-even point (BEP) if a company sells thousands of products? If we find BEP using multiple products formulae, but it may spend a lot of time and unnecessary.  To solve this problem, we need to classify group of products that have very similar selling price and variable cost. Secondly, we find average selling price and average variable cost per unit. Finally we can find BEP using this formula: BEP= Fixed cost / (selling price – variable cost)

Example,

Assume XYZ company purchases and sells the following brand pens.

Brand Pens  Selling Price($)  Variable Cost ($)
A                        2.00                            1.11
B                        1.90                            0.90
C                        2.10                            1.23
D                        1.95                            1.20
E                        2.20                            1.26
F                        2.10                            1.32
G                        2.17                            1.38
H                        2.20                            1.44
I                        2.24                            1.50
J                        2.27                            1.56
K                        2.31                            1.62
L                        2.35                            1.68
M                        1.97                            1.74
N                        2.13                            1.80
O                        1.95                            1.86
P                        2.03                            1.92
Q                        2.06                            1.98
R                        2.08                            1.04
S                        2.11                            1.10
T                        2.13                            1.16
U                        2.16                            1.22
V                        2.18                            1.28
W                        2.21                            1.34
X                        2.23                            1.10
Y                        2.26                            1.16
Z                        2.28                            1.22

 

Assume that fixed costs are $100,000 per month.

Required:

  1. Find break -even point ( BEP) as units
  2. Find break -even point ( BEP) as dollar
Solution:

1.BEP as units

BEP (unit) = FC/(selling price – variable cost)

Average selling price = 2.14 per unit

Average variable cost = 1.39

BEP (unit) = 100,000/(2.14-1.39)=133,333 units

Break-even point is 133,333 pens, so it means when XYZ sells 133,333 pens per month, company gets zero profit (revenue = expense), but if company sells above 133,333 pens, company will get profit.

2. BEP as dollar

BEP (dollar) = 133,333 x 2.14=$285,333

It is break-even point as dollar. When company gets revenue $285,333 ( approximate), so company gets zero profit that is neither loss nor gain.


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