Introduction
From the previous section, we already know that:NI = TR − TC
- If TR = TC, NI = 0 Break Even
- If TR > TC, NI > 0 Profit
- If TR < TC, NI < 0 Loss
Most businesses need to know the point at which they will begin making profit.
This point begins after they break even and is known as the break-even point.
Break-Even Point as a Percentage of Capacity
We have seen that the maximum number of units that can be sold or produced in a certain time period is called the capacity for the period.We have also seen how to find the break-even point in units, graphically and algebraically.
The ratio of the break-even point in units to the capacity can be expressed as a percent. This percent is called the percentage capacity.
Break-even point as percentage of capacity = Break-even point in units / Capacity per period
Example:
Zoho Enterprises breaks even when they make 55 leather jackets.The factory's production capacity for the period is 100 jackets.
Question: Calculate the break-even point as a percentage of capacity.
Solution: The capacity per period is 100 jacjets. The break-even point in units is 55.
Break-even point as a percentage of capacity = Break-even point in units / Capacity per period × 100% = 55 / 100 = 55%
Break-event point as a percentage of capacity is 55%.
Zoho Enterprises will break even when they use 65 % of their capacity
Exercise
Please access the following link to do a similar exercise about break-even point as a percentage of capacity:Break-Even Point as a Percentage of Capacity exercise