Break-even point and sales margin:
The sales margin can be described as that part of the sales amount that plays a role in covering fixed costs and creating profit, for example, the sales margin of a product unit represents the amount of increase in profit due to the production and sale of that additional product unit.
Fixed costs do not change as production and sales increase.
As a result, if for example:
If the sales margin resulting from the production and sale of one product unit is equal to 5000 Rials, the sale of 100 additional product units will increase the profit or reduce the loss, depending on the case, in the amount of 500000 Rials.
The amount of the sales margin of a product unit is equal to the difference between the selling price and the variable costs of a product unit.
Therefore, the sum of the sales margin is also obtained by deducting the sum of the variable costs of a certain number of products from the sum of the sales revenue of that number of products.
Sales revenue 1000000
Deducted: Variable expenses (800,000)
The total amount of sales margin is 200,000
Deductible: Fixed monthly expenses (20,000)
Profit 0
The sales margin ratio, often expressed as a percentage, represents the percentage of sales that is available to recover fixed costs and provide profit. and obtained from the following formula:
Sales margin ratio = (sales margin amount ÷ sales amount) x 100
But the tipping point is the level of activity at which the institution’s income is equal to its expenses.
In other words, the place where the amount of the sales margin covers the sum of the fixed costs is called the break-even point.
Therefore, at the break-even point, the amount of the sales margin is exactly equal to the sum of the fixed costs.
By having the sales margin ratio, you can get the sales amount at the breakeven point:
The amount of sales at the break-even point = the amount of fixed costs ÷ the ratio of sales margin
But we use the following formula to calculate the number of sales at the breakeven point:
X = f ÷ (p – v)
x = number of sales at breakeven point
f = fixed costs
p = average selling price of one unit
v = variable costs of a product unit
But now, if the company wants to obtain the amount of sales necessary to obtain its desired profit, it uses the following formula:
The amount of sales required to obtain the target profit = (amount of fixed costs + target profit) ÷ the amount of sales margin of a product unit
(p – v) ÷ f+ л)) = amount of sales required to obtain the target profit
L = target profit
For example, if the amount of production at the break-even point is 8000 units and the fixed costs are 4800000 Rials and the sales of each unit is 1600 Rials and the cost of each unit is 1000 Rials, in this case, if we want to make a profit of 360000 Rials, we will obtain the sales amount as follows :
8600= (1000 – 1600) ÷ (4800000 + 360000)
That means he has to sell 8600 products to reach a profit of 360000 Rials.
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
The group of accountants and auditors of Tabriz
https://t.me/joinchat/BnzBsTuioTshiXBwf9bBPQ