Break even point excel

The break-even point reflects the volume of production and sales of goods and services which cover all the costs of the enterprise. In the economic sense, it is an indicator of a critical situation when profits and losses are zero. This indicator is expressed in quantitative or monetary units.

The lower the break-even point of the volume of production and sales, the higher the solvency and financial stability of the firm.



Breakeven point formula in Excel

There are 2 ways to calculate the breakeven point in Excel:

1. Monetary equivalent: (revenue*fixed costs) / (revenue — variable costs).
2. Natural units: fixed cost / (price — average variable costs).

Attention! Variable costs are taken from the calculation per unit of output (not common).

To find break-even you need to know:

Fixed costs (independent of the production process or sale). This is lease payments, taxes, salaries for management, leasing payments, etc.

Variable costs (depend on production volumes). This is the cost of raw materials, utility bills for the use of energy resources on production facilities, wages of workers, etc.

The selling price of a unit.

We will enter the data in the Excel table:

Tasks:

1. Find the volume of production in which the company will receive a net profit. Establish a relationship between these parameters.
2. Calculate the volume of sales which will perform breakeven.

We compile the following table with the formulas to solve these tasks:

1. Variable costs depend on the volume of output.
2. Total costs are the sum of variables and fixed costs.
3. Income is the product of the volume of production and the price of the goods.
4. Marginal revenue is a gross income without variable costs.
5. Net profit is income without fixed and variable production costs.

Let’s fill in the table and see what output will help the enterprise ensure cost recovery.

Since the 13th output, net profit has become positive. And in the break-even point, it is equal to zero. The volume of production is 12 units of goods. And the sales revenue is 120,000$.



How to make the graph for break-even point in Excel?

We will draw up a graph for a clear demonstration of the economic and financial condition of the enterprise:

1. Select range «Total costs», «Income», «Net profit» and select: «INSERT»-«Charts»-«Insert Line Chart»



2. Click on chart and choose the look of the graph and click: «CHART TOOLS»-«DESIGN»-«Data»-«Select Data» on the button.



3. For the demonstration, we need the columns «Total costs», «Income», «Net profit». These are the elements of the legend which called «Series». We manually enter the «Series name «. And in the «Series value» line make a reference to the corresponding column with the data.



4. The range of horizontal axis titles is «Production Volume».

We obtain a graph of the next look:

Let’s change the chart a little (Chart Styles):

Such a demonstration allows you to see that the net profit at the breakeven point really equals «zero». And after the twelfth output cycle, we were «in the black».

Where such calculations are needed

The «breakeven point» indicator is in demand in economic practice for the solution of the following tasks:

1. Calculation of the optimal price for the product.
2. Calculation of the total costs at which the firm still remains competitive.
3. Drawing up a plan for the sales.
4. Finding the volume of output which will yield profitability.
5. Analysis of the financial position and solvency of the enterprise.
6. Finding the minimum amount of production.

The results of such calculations are claimed by both internal and external users. The break-even is taken into account when making management decisions and gives an idea of the financial position of the firm. The use of such a model is a way of assessing the critical level of the production volume and the sale of goods and services.

Ready-made calculations and templates for analyzing the output of the enterprise to break-even:

• Download this example calculation break-even point;
• Download an simple of calculation of the break-even point of production;
• Download the calculation of the break-even point of the store;
• Download the form for the calculation of the break-even point;
• Download examples of solving the problem of calculating the break-even point.

Done!

It is calculated by dividing the total fixed costs of the business by the price of the product or
service less than variable costs per item or customer. Break-even analysis through break-even chart
in Excel allows you to see the break-even point both in production units and in sales dollars and
estimate the required growth rate of sales:

The break-even point (or breakeven point, BEP) is the volume of
production and sales of products at which fixed costs will be offset by income. With the
production and sale of each subsequent unit of production, the company begins to make a marginal
profit:

where the Contribution margin for a product (or service) is the price minus the
variable costs.

For example, the first company has the following estimates in its business plan:

Using the above formulas, calculate the critical factors for the first business plan:

So, to cover all fixed costs, the first company managers should sell more than 6,667
units of the product or attract 6,667 customers to the service.

To create a graph for BEP in Excel, do the following:

• Create a chart of revenue and fixed, variable, and total costs
• Add the Break-even point
• Add the Break-even point lines

Create a chart of revenue and fixed, variable, and total costs

   1.   Prepare the data for the chart:

For this example, create a new data table:

where:

• the Fixed costs values are constant and equal to C3
  (= $C$3),
• the Variable costs values = Average variable costs * Units
  (= $C$4 * A11),
• the Total costs values = Fixed costs + Variable costs
  (= B11 + C11),
• the Revenue values = Unit sale price * Units
  (= $C$5 * A11).

   2.   Select the costs and revenue data range (for this example,
A10:E20).

   3.   On the Insert tab, in the Charts group,
click on the Insert Scatter (X, Y) or Bubble Chart dropdown list:

From the Insert Scatter (X, Y) or Bubble Chart dropdown list, select the
Scatter chart you prefer, for example, Scatter with Straight Line.

Excel creates the new chart for the data:

   4.   Make any other adjustments you desire:

Add the Break-even point

   5.   Add the new data:

To add the Break-even point to the chart, it is necessary to have both BEP in sales
volume and BEP in sales dollars values:

• The Break-even point in sales volume was calculated above (= C8),
• The Break-even point in sales dollars can be calculated using the following formula:

For this example:

   6.   Add the new data series to the chart:

   6.1.   Do one of the following:

• Under Chart Tools, on the Design tab, in the Data group, choose Select Data:

  

• Right-click in the chart area and choose Select Data… in the popup menu:

  

   6.2.   In the Select Data Source dialog box,
click the Add button.

   6.3.   In the Edit Series dialog box, choose the appropriate
values for the Series name and Series values fields:

   7.   Customize the Break-even point:

   7.1.   Right-click on any data series and select Format Data Series…
in the popup menu:

   7.2.   In the Format Data Series pane:

• If you can’t select the data series needed, click the arrow next to Series Options and
  select the appropriate data series from the drop-down list.
• On the Fill & Line tab, under Marker, in the Marker Options section,
  select the Built-in option, the appropriate Type and Size:

  

  Note: You can select any Fill and Border type as you wish.

   8.   Make any other adjustments you want:

Add the Break-even point lines

   9.   Select the data series for the Break-even point.

   10.   Under Chart Tools, on the Design tab,
in the Chart Layouts group. From the Add Chart Element dropdown list, select
Error Bars and then More Error Bars Options…:

Ensure that both Horizontal and Vertical Error Bars were added for the data series.

   11.   On the Format Error Bars pane for each error bar:

• On the Error Bars Options tab, in the Vertical Error Bar (or the
  Horizontal Error Bar) section:
  • In the Direction group, select Minus,
  • In the End Style group, select No Cap option,
  • In the Error Amount group, select the Percentage option and then type
    100%:

  

• On the Fill & Line tab, select the Solid line option, choose the
  Color and Width, which you prefer:

Excel has many functions. Other than the normal tabulations, Excel can help you in various business calculations, among other things being Break-Even analysis.

Table of Contents

• How to calculate Break-even analysis in Excel
• What is break-even analysis
• Break-Even Analysis Formula 
• Contribution Margin 
• Break-Even Point Formula in Excel
• Calculate break-even analysis with Goal-Seek
• Calculate Break-Even analysis in Excel with formula
• Calculate Break-Even analysis with chart

How to calculate Break-even analysis in Excel

Break-even analysis is the study of what amount of sales or units sold, a business requires to meet all its expenses without considering the profits or losses. It occurs after incorporating all fixed and variable costs of running the operations of the business.

In this post, we focus on how to use Excel to calculate Break-Even analysis. 

What is break-even analysis

The break-even point of a business is where the volume of production and volume of sales of goods (or services) sales are equal. At this point, the business can cover all its costs. In the economic sense, the break-even point is the point of an indicator of a critical situation when profits and losses are zero. Usually, this indicator is expressed in quantitative or monetary units.

The lower the break-even point, the higher the financial stability and solvency of the firm.

Break-even analysis is critical in business planning and corporate finance because assumptions about costs and potential sales determine if a company (or project) is on track to profitability.

Break-even analysis helps organizations/companies determine how many units they need to sell before they can cover their variable costs and the portion of their fixed costs involved in producing that unit.

Break-Even Analysis Formula 

To find the break-even, you need to know:

• Fixed costs 
• Variable costs
• Selling price per unit
• Revenue 

The break-even point occurs when:

Total Fixed Costs (TFC) + Total Variable Costs (TVC) = Revenue

• Total Fixed Costs are known items such as rent, salaries, utilities, interest expense, amortization, and depreciation. 
• Total Variable Costs include things like direct material, commissions, billable labour, and fees, etc.
• Revenue is Unit Price * Number of units sold.

Contribution Margin 

A key component of calculating the break-even analysis is understanding how much margin or profit is generated from sales after subtracting the variable costs to produce the units. This is called a contribution margin. Thus: 

Contribution Marin =  Selling Price — Variable Costs 

Break-Even Point Formula in Excel

You can calculate the break-even point with regard to two things:

1. Monetary equivalent: (revenue*fixed costs) / (revenue — variable costs).
2. Natural units: fixed cost / (price — average variable costs).

Bearing this in mind, there are a number of ways to calculate the break-even point in Excel:

1. Calculate break-even analysis with Goal-Seek Feature (a built-in Excel tool)
2. Calculate break-even analysis with a formula
3. Calculate break-even analysis with a chart

Calculate break-even analysis with Goal-Seek

Case: Supposing you want to sale a new product. You already know the per unit variable cost and the total fixed cost. You want to forecast the possible sales volumes, and use this to price the product. Here is what you need to do.

1. Make an easy table, and fill in items/data.
   
   
2. In Excel, enter proper formulas to calculate the revenue, the variable cost, and profit. 
   1. Revenue = Unit Price x Unit Sold
   2. Variable Costs = Cost per Unit x Unit Sold
   3. Profit = Revenue – Variable Cost – Fixed Cost 
   4. Use these formulas for your calculation.
      
3. On your Excel document, Click the Data > What-If Analysis > select Goal Seek.
   
   
4. When you open the Goal Seek dialogue box, do as follows:
   1. Specify the Set Cell as the Profit cell; in this case, it is Cell B7;
   2. Specify the To value as 0;
   3. Specify the By changing cell as the Unit Price cell, in this case; it is Cell B1.
   4. Click the OK button
      
5. The Goal Seek Status dialogue box will pop up. Please click the OK to apply it.
   
   

Goal Seek will change the Unit Price from 40 to 31.579, and the net profit changes to 0. Remember, at break-even point profit is 0. Therefore, if you forecast the sales volume at 50, the Unit price cannot be less than 31.579. Otherwise, you will incur a loss.

Calculate Break-Even analysis in Excel with formula

You can also calculate the break-even on point on Excel using the formula. Here’s how:

1. Make an easy table, and fill items/data. In this scenario, we assume we know the units sold, cost per unit, fixed cost, and profit.
   
   
2. Use the formula for calculating the missing items/data.
1. Type the formula = B6/B2+B4 into Cell B1 to calculating the Unit Price, 
2. Type the formula = B1*B2 into Cell B3 to calculate the revenue,
3. Type the formula = B2*B4 into Cell B5 to calculate variable costs. 

Note: if you change any value, for instance, the value of the forecasted unit sold or cost per unit or fixed costs, the value of the unit price will change automatically. 

Calculate Break-Even analysis with chart

If you have already recorded your sales data, you can calculate the break-even point with a chart in Excel. Here’s how:

1. Prepare a sales table. In this case, we assume we already know the sold units, cost per unit, and fixed costs, and we assume they’re fixed. We need to make the break-even analysis by unit price.
   
   
2. Finish the calculations of the table using the formula
   
   
   1. In the Cell E2, type the formula =D2*$B$1 then drag its AutoFill Handle down to Range E2: E13;
   2. In the Cell F2, type the formula =D2*$B$1+$B$3, then drag its AutoFill Handle down to Range F2: F13;
   3. In the Cell G2, type the formula =E2-F2, then drag its AutoFill Handle down to the Range G2: G13.
3. This calculation should give you the source data of the break-even chart.
   
   
4. On the Excel table, select the Revenue column, Costs column, and Profit column simultaneously, and then click Insert > Insert Line or Area Chart > Line. This will create a line chart.
   
   
5. Next, right-click the chart. From the context menu, click Select Data.
   
   
6. In the Select Data Source dialogue box, do the following:
1. In the Legend Entries (Series) section, select one of the series as you need. In this case, we select the Revenue series;
2. Click the Edit button in the Horizontal (Category) Axis Labels section;
3. A dialogue box will pop out with the name Axis Labels. In the box specify the Unit Price column (except the column name) as axis label range;
4. Click OK > OK to save the changes.
   
   
7. A chat will be created, called the break-even chart. You will notice the break-even point, which occurs when the price equals to 36.
   
   
8. Similarly, you can create a break-even chart to analyze the break-even point by sold units:
   

You’re done. Its that simple. 

Wrapping up 

You can tweak the appearance of your data through the data section and design tools. Excel allows you to do many other things with the data. 

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