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Zancou
Zancou asked in Business & FinanceOther - Business & Finance · 5 years ago

Can you please review my Break even point calculation and tell me what is wrong with it?

Update:

Revenue = 5979

Fixed Cost = 2925

Variable Cost = 6843

Contribution Margin Rate = (Revenue - Variable Cost) / Revenue

CMR = -14%

Break Even Point = Fixed Cost / CMR

BEP = 20,246.

This can't be correct...

2 Answers

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  • anonimitie
    Lv 7
    5 years ago

    I think you're expressing your figures in the wrong units. Fixed costs ought to be divided across each unit, making it lower per unit. Variable costs are multiplied by each unit and grows higher with each unit produced.

    Just look at your numbers: It costs $6,843 in variable cost to make something that produces $5,979 in revenue? That's a piss-poor business.

    Also, Fixed Cost / CMR or 2,925 / -.014 = - 20,892. That semi makes sense since, according to all this, they lost money. They should have produced less to reduce their variable cost.

  • olliver
    Lv 6
    5 years ago

    You can't use the formula if the CMR is negative. The business has no break-even point. The more you sell the more you lose.

    Source(s): http://www.double-entry-bookkeeping.com/break-even...
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