There is a level at which the number of units we are selling only enough to cover fixed costs. Knowledge is very important because we will allow to take decisions that have to take before it's too late.
As we come to know the balance point?.
If we look, our income statement is comprised of two essential concepts: sales and costs, the difference between the two is often referred MARGINAL TAX, INCOME OR GROSS MARGIN MARGINAL
both percentage and margin dollars represents the amount of money we get above what it costs us the product.
This extra money we get we will be able to use to finance FIXED COSTS OR STRUCTURE, whether for rent, utilities, taxes, trade, etc,. They reflect the size of the business structure in question. The balance remaining after subtracting the fixed costs genuine money is to withdraw or reinvest in the business, is usually referred to as NET PROFIT OR GAIN.
A simple equation will allow us to know the number of units sold are needed to maintain the structure that we set afloat. At this point the company breaks even.
If we divide the total amount of fixed costs by the margin we get the balance point.
Ex:
unit selling price: $ 10
Unit Cost: $ 6.66
Drives: 1500
Sales
15.000 $ 10 Cost of Sales (10,000) $ 6.66 Marginal Contribution
5.000 $ 3.34
Fixed Expenses 2,600 2,400 Net Income
Breakeven: Fixed costs / unit Cont.Mg . 2600 / 3.34 = 778 778
are the units that we have to sell at least not to enter location of the leak.
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