How to find equilibrium point/Example/ Breakeven analysis
Equilibrium Point Plot Example
The term equilibrium point is used within economics to define the sales levels that must be achieved to cover total costs. When the company succeeds, it achieves several benefits in its favor, even if the monetary remuneration it receives is zero. How to find equilibrium point?
This means that even though the company has not been able to make money, it has not lost it either. When full costs are covered and breakeven is reached , companies can get items above breakeven and start to see a profit .
To analyze the breakeven point of your company you must have certain data at hand. You must study the possible variables such as the costs and prices of a product, then calculate the equilibrium point itself and make the comparison of the data obtained with the results of previous times and represent everything in a graph.
What is sought to achieve with this is to be able to move within the graph with ease to achieve the necessary results. How to find equilibrium point?
Balance point interpretation
Interpreting the breakeven graph is very easy. Once you have represented all the necessary data in it, you only have to make comparisons of the results of other companies that are in a similar situation.
The slopes that represent the lines of costs and income can be of great help to know if your business or venture is stagnant or if it is progressing favorably, it is also ideal to identify what changes must be made to achieve specific goals. How to find equilibrium point?
When the analysis includes several products , the interpretation is a bit more complex.
Elements that are required for the calculation
These are the elements that you must add to the graph to obtain the necessary results:
- Fixed costs.
- Unit sales prices.
- Unit variable cost.
Balance point formula
The unit formula is the most used when calculating the breakeven point, it allows calculating the number of units that must be sold to avoid losses. It is extremely easy and it also allows you to know the amount of money, in sales, that are needed for the company to reach a point of equilibrium.
PE = (Fixed costs) / ((Selling price per unit-Selling cost per unit))
Balance point example
To better understand the previous formula, we leave you an example where the points mentioned are analyzed with real values: How to find equilibrium point?
A business that sells laptops needs to know its breakeven point. Each laptop has a value of 50 euros.
In this case the unit variable cost would be 35 euros and the fixed cost of 7,500 euros. Therefore, the formula would be: How to find equilibrium point?
7500 / ((50-35)) = 500
The company needs to sell 500 laptops at 50 euros, which equates to a value of 25,000 euros in sales to break even.