Profitability threshold fixed costs. Test tasks

The threshold of profitability is characterized by the number of products sold, the proceeds from which corresponds to the total costs of the enterprise. In other words, this is the volume of sales at which the company still does not make a profit, but no longer incurs losses.

Due to the proceeds received from the sale, the company manages to compensate for the costs of a variable type, as well as those related to fixed ones. Despite the fact that the company will not have a profit, it will still receive marginal income, which is the difference between revenue and non-fixed costs.

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The category of variables includes those costs that are directly related to production (the cost of raw materials, piecework wages, etc.) and are directly dependent on production activities. Fixed costs are due to the actual need to organize production, rent premises and equipment, pay utilities and does not depend on the volume of output.

Basic moments

What is the threshold of profitability - can be easily understood by imagining an enterprise that is just starting its activity. For some time, it will only work to recoup the previously invested funds, and the moment when it succeeds, but at the same time it will not have actual profit, is precisely called the profitability threshold.

The definition of this moment is necessary for:

• identifying conditions when the company fails to recoup the average variable costs, and it is more expedient to stop its activities;
• solving the problem of obtaining maximum profit and more rational distribution of resources, as well as optimization of certain costs;
• the ability to calculate the minimum volume of production and subsequent sale of goods, at which the business will reach the break-even level.

Important Factors

The value of profitability depends on several factors, in particular on the price at which products are sold, as well as on what the level of costs of a fixed and variable type. Changing these factors directly affects the threshold of profitability. The break-even point is calculated only after the division of costs into fixed and variable has been completed.

The constants do not change or change little over a certain period:

• salary;
• management and administrative expenses;
• communal payments.

The peculiarity of fixed costs is that they are weakly amenable to reduction even in the case of a decrease in the volume of production itself, in contrast to variables that are directly proportional to the quantity of manufactured products.

This includes:

• spending on the purchase of raw materials and materials;
• fare;
• remuneration of workers in professions of a production nature;
• payment for consumed energy resources;
• trade-commission plan expenses.

Classic Formula

To determine the threshold of profitability, physical terms or monetary terms can be used. In the first case, this is determined by the ratio of the sum of fixed costs of the enterprise incurred during the planning period to the difference between the cost of a unit of production and the sum of variable costs for its manufacture.

Calculation formula in this case next: TBsht. = Fixed costs / (Price of one unit of product - Sum of variable costs for each unit of product). The resulting value shows the minimum of products that must be manufactured and sold during the planning period in order to reach the breakeven level.

Due to the fact that in most cases the enterprise is engaged in the manufacture of not one, but several various kinds products, then to determine the threshold of profitability, it is more expedient to use a different approach based on total volume sales in terms of money.

In this case, this indicator will express the ratio of the product of the amount of fixed costs incurred by the proceeds received from the sale to the difference between the proceeds from the sale of funds and the cost of products that were sold.

The formula in this case looks like this:

Tbrub \u003d Fixed costs x Sales proceeds / (Proceeds from sales - Variable costs).

Main indicators

The most significant indicators that allow to analyze the financial situation of the company are the following coefficients:

The attractiveness of an enterprise is determined primarily by the level of its profitability, as it demonstrates the maximum percentage that the company can afford.

Rules for calculating the profitability threshold

For each company, calculating the profitability threshold is extremely important in terms of obtaining more complete information about its financial condition and the possibility of planning potential profits. In this case, certain rules must be followed.

In particular, since this indicator reflects sales at which the company is not yet making a profit, it is reasonable to aim for a position where the revenue received will exceed the profitability threshold.

The second rule that the management of the enterprise must remember is that the production lever increases its strength as the break-even point approaches. It follows from this that when a certain level exceeding the threshold of profitability is reached, an inevitable sharp increase in fixed costs occurs.

The company must certainly overcome the break-even threshold, otherwise there will be no point in its existence. At the same time, it is important to realize that at some point the continuation of production will become impossible without an increase in fixed costs, which, in turn, will lead to a decrease in profits in the short term.

Other nuances

detailed instructions

The task of finding the profitability threshold can be solved analytically or graphically. Analytical implies the implementation of the calculation of this indicator using the formula: Threshold of profitability - Fixed costs / gross margin ratio.

In turn, the gross margin is calculated by subtracting the amount of variable costs from the amount of revenue, and to determine its coefficient, it is required to divide the amount of the gross margin by the amount of revenue.

You can also use a single formula for calculating the profitability threshold as the product of the amount of fixed costs by the amount of revenue (minus variable costs).

To find the break-even point using a graphical method, you must first draw the chart itself. After that, on the Y-axis, you should set the values ​​\u200b\u200bof fixed costs. By drawing a line parallel to the x-axis, you need to mark the fixed costs on it. On the X-axis itself, the point of sales volumes is determined, for which the sum of permanent and variable costs is calculated. A straight line is drawn according to the set values.

On the X axis, one more point of sales volumes is marked and the amount of revenue for this value is determined. According to the obtained values, a straight line is also constructed.

The critical (or break-even point) on this chart is the point formed at the intersection of the above two lines. With a properly constructed schedule, you can easily compare expenses with income received from the sale of products.

The margin of financial strength is an indicator showing how much reduction in production and sales of products can be allowed without loss to the company. The concept of a financial safety margin includes the entire volume of real production that goes after the break-even point. It is calculated by subtracting the value of the threshold of profitability from the amount of revenue.

This indicator is extremely important in terms of assessing how financially stable the enterprise is. Its calculation makes it possible to assess whether an additional reduction in revenue is acceptable within the break-even point.

The essence of the effect of operating leverage is that with any change in the proceeds received from the sale of products, profit invariably changes to an even greater extent.

Operating leverage operates due to the fact that conditionally fixed and conditionally variable costs disproportionately affect the financial result in the event of a change in the volume of manufactured and sold products. The action of the lever is the stronger, the greater the share in the cost of production is occupied by expenses of a conditionally permanent category.

You can calculate the force with which the operating lever acts by dividing contribution margin on the profit that was received from the sale. For the calculation, it is required to find the difference between the proceeds from the sale of goods and the sum of the costs incurred on the total production volume.

You can find out the value of profit from sales by subtracting from the amount of revenue the entire amount of funds (fixed and variable) that were spent on all production.

The greater the indicator of the financial strength of the enterprise, the more stable it is from a financial point of view. The goal of any management of the company is to increase the gap between the threshold of profitability and the revenue received.

Graphically or via Excel

An example of calculation via Excel is presented below:

• first, fixed and variable costs, as well as the cost of a unit of goods, are prescribed in the corresponding cells;
• on the basis of them, the calculation of changes in profits and costs is made, depending on the volume in which the goods are sold;
• fixed costs remain the same regardless of output, but the sum of variable costs increases in proportion to production.

Another extremely popular, simple and visual way to find the break-even point is to use a chart. The profitability threshold will be located at the point where the income line intersects with the line of the company's total costs, or where the indicator net profit will be equal to zero.

How can you reduce

Of the effective methods to achieve a decrease in the level of transition of the profitability threshold, it is worth mentioning only an increase in marginal income corresponding to permanent costs at a critical volume of sales.

This requires:

• increase in the volume of products sold;
• increasing the cost of a unit of goods, while monitoring the observance of the boundaries of solvent demand;
• reduction of non-permanent costs - salaries, deductions for rent and utility bills;
• reduction of permanent costs, increasing the value of the threshold of profitability and reflecting the riskiness of the enterprise.

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One of the most important stages in the planning of the organization's activities is the consideration of options for possible changes in the market situation and the possibilities of the organization's activities in these conditions.

One of the most available methods management of business activities and financial performance is operational analysis, carried out according to the scheme: costs - sales volume - profit. This method allows you to identify the dependence financial result from changes in costs, prices, volume of production and sales.

With operational analysis, you can:

1. evaluate profitability economic activity;

2. predict the profitability of the organization;

3. assess business risk;

4. choose the best ways out of the crisis;

5. evaluate the profitability of investments;

6. develop the most beneficial assortment policy for the organization in the field of production and sales.

Key elements operational analysis following indicators:

Critical volume of production and sales of products;

Threshold of profitability;

margin of financial strength.

Business break-even analysis is one of the main tools for solving a large class managerial tasks. Through such an analysis, it is possible to determine the break-even point and the margin of financial safety (safety zone), plan the target production volume, set prices for products, select the most effective technologies production, adopt optimal production plans.

Break-even point (profitability threshold)- this is the minimum allowable sales volume, which covers all the costs of manufacturing products, while not bringing any profit or loss.

If the company produces only one type of product, the break-even point is calculated by the formula:

TB \u003d PZ / (C - Per.Z.ud.),

TB - breakeven point, units.

ПЗ - fixed costs, rub.;

P is the price of a unit of production, rub./unit;

Ln.Z.ud. - variable costs per unit of production, rub./unit;

(C -. Per.Z.ud) - marginal income per unit of production, rub. / unit.

In value terms, the profitability threshold is determined as follows:

TB \u003d PZ / Kmd,

TB is the critical amount of revenue, rub.

Кмд - coefficient of marginal income;

Kmd = MD / N

N - sales revenue, rub.

MD \u003d N - Per.Z.

If there is more than one type of product, the break-even point can be determined for the business as a whole or for individual types of products.

The difference between the actual or planned sales proceeds (Nactual, - Nplan) and the critical amount of proceeds (TB) characterizes margin of financial safety (FFP):

ZFP = Nfact - TB

or ZFP = Nplan - TB

An entity with no risk of loss can reduce the sales proceeds by the amount of the FFP. The margin of financial strength can be determined not only in absolute terms, but also relative:

KZFP \u003d ZFP / Nfact * 100%

or KZFP = ZFP / Nplan * 100%

Financial safety factor reflects the percentage of allowable reduction in sales revenue without the risk of loss.

The safety indicator is often used to assess operational risk: the higher the indicator, the safer the situation, since the risk of lowering the equilibrium point is less.

test questions on this topic

1. What is the role economic analysis in organizational planning?

2. What's the point budget planning In the organisation?

3. What are the main methods used in developing a business plan?

4. How is the sales budget developed?

5. What is the production budget?

6. How is the estimate of direct material costs?

7. How is the cost estimate for wages and general production costs compiled?

8. How is the estimated cost of production calculated?

9. What costs are fixed and variable?

10. What method can be used to divide the total costs into fixed and variable?

11. How is margin income calculated?

12. How is the profitability threshold calculated?

Tests

1. The total need for working capital is determined:

a) the structure of equity

b) the profitability of the production of this type of product

c) the scale of production and the time of turnover of current assets

2. With a decrease in variable costs, the profitability threshold of the organization:

a) remains the same

b) rises

c) goes down

3. How will the increase fixed costs on the margin of financial strength of the organization:

a) will increase

b) decrease

c) stay the same

4. How will the increase in fixed costs affect the critical sales volume?

a) the critical volume will decrease

b) the critical volume will not change

c) the critical volume will increase

5. The organization's operating budget includes:

a) the budget for direct labor costs;

b) flow budget Money;

c) investment budget.

6. The forecast cash flow statement is developed on the basis of:

A) long-term sales forecast

B) general business overhead budget

B) capital investment budget

d) pro forma income statement

7. The financial indicators of the business plan must be balanced:

a) with indicators of capital intensity

b) with indicators of the volume of production and sales of products

c) with profitability indicators

8. The threshold of product profitability (the point of the critical volume of production) is determined by the ratio:

a) fixed costs to revenue from product sales

b) fixed costs to variables

c) fixed costs to marginal income per unit of output

9. The company's operating budget includes:

a) the budget for direct labor costs

b) cash flow budget

c) investment budget

10. Top-down budgeting process:

a) carried out by employees directly involved in the production process

b) requires general budget directives

c) is characterized positive attitude managers at lower levels

d) better reflects organizational goals

11. The zone of safe or stable operation of the organization is characterized by:

a) the difference between marginal income and fixed costs

b) the difference between marginal income and profit from product sales

c) the difference between the actual and critical volume of sales

12. The cost elements for the production and sale of products (works, services) are:

a) raw materials, materials, fuel, energy, wage, depreciation

b) depreciation, material costs, wages, general business expenses.

13. One of the methods for compiling financial plan is an:

a) percentage of sales method

b) chain substitution method

14. The organization's budget is:

a) forecast balance

b) a quantitative plan in monetary terms, showing the planned amount of income and expenses

Practical tasks

1. Determine the threshold for profitability of sales new products(ETC). Estimated unit price (C) - 500 rubles. Variable costs per unit of production (PeryuZ.ed.) - 60%. Annual amount fixed costs (PC) - 200 thousand rubles.

2. Determine the amount of financial safety margin, if:

sales revenue (N) is 600 tr., variable costs (Per.Z) - 300 tr., fixed costs (PC) - 150 tr.

3. . Specific gravity marginal income in sales revenue is 30%; sales volume at the break-even point - 600 thousand rubles. What is the amount of fixed costs?

4. Determine the critical sales volume (TB) if:

Fixed costs (PC) - 200t. rubles

Variable costs per unit of production (Per.Z.ed) - 800 rubles

The price of a unit of production is 1800 rubles.

5. What is the value of contribution margin, if:

Sales proceeds - 120,000 rubles.

Fixed costs - 30,000 rubles.

Variable costs - 70,000 rubles.

6. Determine the point of critical sales volume (TB), if:

Sales proceeds (N) - 6000 thousand rubles.

Fixed costs (FC) - 1000 thousand rubles.

Variable costs (Per.Z) - 2000 thousand rubles.

7. Determine the amount of profit (P), if:

Marginal income (MD) - 3000t.r.

Fixed costs (FC) - 1500t.r.

Sales proceeds (N) -8200t.r.

8. As of the reporting date, the organization has the following indicators:

At the beginning of the period At the end of the period

Stocks of materials: 2,750 3,250

Costs in work in progress 4,800 4,000

Finished products 2,500 1,250

The following expenses were incurred during the reporting year:

For materials - 20,000 rubles.

For wages - 11,000 rubles.

General production expenses - 16,500 rubles.

Profitability threshold- this is such sales revenue, in which the company has no loss, but still no profit.

The profitability threshold is an indicator characterizing the volume of sales of products, at which the company's revenue from the sale of products (works, services) is equal to costs. This is the volume of sales at which the business entity has neither profit nor loss.

Profitability threshold analysis is performed in the FinEcAnalysis program in the block Calculation of the break-even point using operating leverage.

Profitability Threshold Formula

The profitability threshold is determined by the formula:

Synonyms

break-even point, solvency point, critical sales volume

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Break even corresponds to the volume of sales at which the firm covers all fixed and variable costs without making a profit. Any change in revenue at this point results in a profit or loss. In practice, 2 methods are used to calculate this point: the graphical method and the method of equations.

With the graphic method finding the break-even point comes down to building a comprehensive schedule of "costs - output - profit".

The break-even point on the chart is the point of intersection of the straight lines built by the value of total costs and gross revenue. At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If the company sells products less than the threshold sales volume, then it suffers losses; if more, it makes a profit.

The revenue corresponding to the break-even point is called threshold revenue . The volume of production (sales) at the break-even point is called production threshold (sales), if the company sells products less than the threshold sales volume, then it suffers losses, if more, it makes a profit.

Equation method based on the use of the formula for calculating the break-even point

Qpcs \u003d Fixed costs / (Price per unit of production - Variable costs per unit of production)

y=a+bx

a- fixed costs b- variable costs per unit of output, x- the volume of production or sales at a critical point.

Profitability threshold- this is such sales revenue at which the company has no losses, but has not yet made a profit. In such a situation, sales revenue after recovering variable costs is sufficient to recover fixed costs.

Profitability Threshold = Fixed Costs / Marginal Income Ratio

Coeff. marginal income = (sales volume - variable costs) / volume of sales

It is desirable that marginal income not only covers fixed costs, but also serves as a source of operating profit.

Margin of financial strength – excess of actual sales proceeds over the profitability threshold:

Financial safety margin = ((Planned sales revenue - Threshold sales revenue) / Planned sales revenue) ´ 100%

The strength of the impact of operating leverage shows how many times the profit will change if the sales proceeds change by one percent.

Break-even point (profitability threshold)- this is such revenue (or the amount of production) that provides full coverage of all variable and semi-fixed costs with zero profit. Any change in revenue at this point results in a profit or loss.

Profitability threshold can be determined both graphically and analytically: Revenue = Variable Costs + Fixed Costs + Profit

With the graphical method, the break-even point (profitability threshold) is found as follows:

1. we find the value of fixed costs on the Y axis and draw a line of fixed costs on the graph, for which we draw a straight line parallel to the X axis;

2. select any point on the X axis, i.e. any value of sales volume, we calculate the value of total costs (fixed and variable) for this volume. We build a straight line on the graph corresponding to this value;

3. choose again any amount of sales on the x-axis and for it we find the amount of sales proceeds. We construct a straight line corresponding to this value.

Break even on the graph, this is the point of intersection of the straight lines built according to the value of total costs and gross revenue (Fig. 1). At the break-even point, the revenue received by the enterprise is equal to its total costs, while the profit is zero. The amount of profit or loss is shaded. If the company sells products less than the threshold sales volume, then it suffers losses; if more, it makes a profit.

Figure 1. Graphical definition of the break-even point (profitability threshold)

Threshold of profitability = Fixed Costs/ Gross Margin Ratio

Gross margin ratio. Gross margin (the amount to cover fixed costs and generate profits) is defined as the difference between revenue and variable costs.

Gross margin ratio = Gross Margin / Sales Revenue

Production cost factor products sold = Cost of goods sold / Sales revenue

General and administrative cost ratio = Sum of general and administrative costs / Sales revenue

You can calculate the profitability threshold for both the entire enterprise and certain types products or services.

The company begins to make a profit when the actual revenue exceeds the threshold. The greater this excess, the more stock the financial strength of the enterprise and more the amount of profit.

Margin of financial strength. Excess of actual sales proceeds over the threshold of profitability.

Margin of financial strength\u003d revenue of the enterprise - the threshold of profitability.

The strength of the impact of the operating lever (shows how many times the profit will change when the sales proceeds change by one percent and is defined as the ratio of gross margin to profit).

1. Gross margin = sales revenue - variable production costs.

2. Gross margin ratio = gross margin / sales revenue.

3. Threshold of profitability (break-even points) = sum of fixed costs / gross margin ratio.

4. Margin of financial strength:

a) in rubles = sales proceeds - profitability threshold;

b) in % of sales proceeds = profitability threshold in rubles / sales proceeds.

5. Profit = financial safety margin ´ gross margin ratio.

6. Force of operating leverage = gross margin / profit.

The main purpose of operational analysis is to find the most beneficial relationship between variable costs per unit of output and fixed costs.

1. Gross margin. One of the main tasks financial management is the maximization of the gross margin, since it is it that is the source of covering fixed costs and determines the amount of profit.

2. Gross margin ratio. In operational analysis, it is used only to determine the expected value of profit.

3. Threshold of profitability (break-even point)- a situation in which p / p does not incur losses, but also has no profit. At the same time, the number of sales that are below the break-even point entails losses, sales that are above the break-even point bring profit. The higher the threshold of profitability, the more difficult it is to step over the enterprise. P / p with a low threshold of profitability more easily survive the fall in demand for products and, as a result, a decrease in the selling price.

4. Margin of financial strength shows the excess of actual sales proceeds over the profitability threshold. The larger this value, the more financially stable is p / p.

5. This technique is used only for predictive calculations (short-term and medium-term forecasts).

Profitability threshold(break-even point, critical point, critical volume of production (sales)) - this is the volume of sales of the company at which the sales revenue fully covers all the costs of production and sales of products. To determine this point, regardless of the methodology used, it is first necessary to divide the projected costs by constants and variables.

The practical benefit of the proposed division of costs into fixed and variable costs (the amount of mixed costs can be neglected or proportionally attributed to fixed and variable costs) is as follows:

Firstly, it is possible to determine exactly the conditions for the firm to stop production (if the firm does not recoup the average variable costs, then it must stop production).

Secondly, it is possible to solve the problem of profit maximization and rationalization of its dynamics with the given parameters of the firm due to the relative reduction of certain costs.

Thirdly, such a division of costs allows you to determine the minimum volume of production and sales of products at which the business breaks even (profitability threshold), and show how much the actual volume of production exceeds this indicator (the financial safety margin of the company).

Profitability threshold is defined as the proceeds from the sale, at which the enterprise no longer has losses, but does not receive profit, that is financial resources from the sale after reimbursement of variable costs is only enough to cover fixed costs and the profit is zero.

Break even point in kind for the production and sale of a specific product (Tb) is determined by the ratio of all fixed costs for the production and sale of a specific product (Zpost) to the difference between the price (revenue) (C) and variable costs per unit of product (Zud. per.):

Break-even point in value terms is defined as the product of the critical volume of production in physical terms and the price of a unit of output.

The calculation of the profitability threshold is widely used in profit planning and determining financial condition enterprises. Two rules for entrepreneurs:

1. It is necessary to strive for a situation where revenue exceeds the profitability threshold, and to produce goods in kind that exceed their threshold value. This will increase the company's profits.

2. It should be remembered that the force of the impact of the production lever is greater, the closer production is to the threshold of profitability, and vice versa. This means that there is a certain limit of exceeding the threshold of profitability, which must inevitably be followed by a jump in fixed costs (new means of labor, new premises, increased costs of managing the enterprise).

The company must necessarily pass the threshold of profitability and take into account that after the period of increasing the mass of profits, there will inevitably come a period when, in order to continue production (increase production output), it will simply be necessary to sharply increase fixed costs, which will inevitably result in a reduction in income received in short term arrived.

When making a specific decision on the volume of production, the entrepreneur should take into account these conclusions.

Margin of financial strength shows how much you can reduce the sale (production) of products without incurring losses. The excess of real production over the threshold of profitability is the margin of financial strength of the company:

Margin of financial strength= Revenue - Threshold of profitability

The margin of financial strength of an enterprise is the most important indicator of the degree of financial stability. The calculation of this indicator makes it possible to assess the possibility of an additional reduction in revenue from sales of products within the break-even point.

In practice, there are three situations that will affect the amount of profit and the financial strength of the enterprise in different ways: 1) the volume of sales coincides with the volume of production; 2) the volume of sales is less than the volume of production; 3) the volume of sales is greater than the volume of production.

Both the profit and the margin of financial safety obtained with an excess of output are less than if sales volumes correspond to production volume. Therefore, an enterprise interested in improving both its financial stability and financial results should strengthen control over production volume planning. In most cases, an increase in the inventory of an enterprise indicates an excess of production. An increase in stocks in terms of finished products directly testifies to its excess, indirectly - an increase in stocks of raw materials and starting materials, since the enterprise bears the costs for them already when they are purchased. A sharp increase in inventories may indicate an increase in production in the near future, which should also be subjected to a rigorous economic justification.

Thus, if an increase in the company's reserves is detected in the reporting period, it can be concluded that it affects the value of the financial result and the level of financial stability. Therefore, in order to reliably measure the value of the financial safety margin, it is necessary to correct the sales proceeds indicator by the amount of the increase in the company's inventory for reporting period.

In the last version of the ratios - with a sales volume greater than the volume of production - the profit and the financial safety margin are greater than with the standard construction. However, the fact of selling products that have not yet been produced, that is, in fact, does not exist yet in this moment(for example, when prepaying a large consignment of goods that cannot be produced for the current reporting period), imposes on the enterprise additional obligations that must be met in the future. Exists internal factor, which reduces the actual value of the financial safety margin, is hidden financial instability. A sign that an enterprise has hidden financial instability is a sharp change in the volume of stocks.

So, to measure the margin of financial safety businesses need to take the following steps:

1) calculation of the margin of financial strength;

2) analysis of the impact of the difference in sales volume and production volume through the correction of the value of the financial safety margin, taking into account the increase in the inventory of the enterprise;

3) calculation of the optimal increase in the volume of sales and the limiter of the financial safety margin.

The margin of financial strength, calculated and adjusted, is an important comprehensive indicator of the financial stability of an enterprise, which must be used in predicting and ensuring the comprehensive financial stability of an enterprise.

DEFINITION

Represents the revenue of the enterprise (the volume of products sold or manufactured), which will provide full coverage of fixed and variable costs for the implementation this production. In this case, the profit will be zero. The profitability threshold is often called the break-even point, the critical threshold for sales (sales).

The profitability threshold formula is of great importance in the implementation effective work enterprises. The value of the profitability threshold reflects the amount of products that need to be produced or sold to cover all costs. The threshold of profitability is the volume of goods or services at which the profit of the enterprise is zero and it does not incur losses.

The profitability threshold indicator is calculated from different positions:

• Reflects the state of the enterprise in which it does not make a profit, but can function;
• It defines the barrier, when passing through which the company will start to make a profit or go at a loss.

Profitability Threshold Formula

Any enterprise can determine the profitability threshold in two ways:

• In monetary terms (for example, in rubles),
• In physical terms (in pieces).

Profitability threshold formula in monetary expression looks like this:

Here PR is the threshold of profitability,

Vyr - the amount of revenue,

Zpost - the amount of fixed costs,

Zper - the sum of variable costs.

In physical terms, the profit margin formula looks like this:

PR \u003d Z post / (C - NW lane)

Here C is the price of a unit of production,

SZper - average variable costs for the production of each unit of output.

Graphical determination of the profitability threshold

Most often, along with the profitability threshold, a graphical method for determining it is used. The graphic image allows you to visually display the situation of growth in business efficiency or its decrease.

In order to build a graph, you need to do the following:

• Calculation of the profitability threshold for several volumes of sales (output),
• Mark all the points on the graph and connect them into a unifying curve.

Profitability threshold value

The profitability threshold formula is most often used when predicting the profit and financial condition of a company.

Each entrepreneur must strive for a situation where revenue exceeds the profitability threshold, while in physical terms the amount of goods produced must exceed the threshold value. If these conditions are met, the company will be able to start increasing profits.

It is important to note that the impact of the production lever increases with the approach of production to the threshold of profitability, and vice versa. This means that there is a certain limit of exceeding the threshold of profitability, which will certainly be followed by a sharp increase in fixed costs (purchase of new labor tools, new premises, an increase in management costs).

Every new enterprise must necessarily pass the threshold of profitability, given that after the increase in the mass of profits, there will inevitably come a period of the need for a sharp increase in fixed costs. This will lead to a reduction in short-term profits.

Examples of problem solving

EXAMPLE 1