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Break-Even Point (BEP)
The point where total revenue equals total costs, resulting in zero profit.
Methods for Calculating BEP
Equation method, Contribution Margin per Unit method, Contribution Margin Ratio method.
Formula for Break-Even Point in Units
Fixed Costs / Contribution Margin per Unit.
Contribution Margin per Unit Calculation
Selling Price per Unit - Variable Cost per Unit.
Formula for Break-Even Point in Dollars
Fixed Costs / Contribution Margin Ratio.
Effect of Decreasing Selling Price on BEP
BEP increases because the contribution margin per unit decreases.
Cost-Plus Pricing
Pricing strategy where price is set as variable cost plus a percentage markup.
Target Costing
Setting a price based on market conditions while controlling costs for profitability.
Effect of Reducing Fixed Costs on BEP
BEP decreases because fewer units need to be sold to cover costs.
Margin of Safety Calculation
(Budgeted Sales - BEP Sales) / Budgeted Sales.
