BEP Calculation Possible with Multiple Products?
If you have multiple products with hardly any variable cost, would BEP calculation still be an option?
I have 40 lines and do not know how many products will sell. I only have a fixed expense being the space hired monthly and electricity usage. Would electricity be a variable cost since the usage depends on how long the machine is running. Do I then allocate this cost over all the products equally. Please advise.
X
Welcome to the Break-even Analysis forum. The topic being discussed here is: "BEP Calculation Possible with Multiple Products?".
Sign up now to gain access. It's easy and 100% free.
Log in
|
|
|
1 |
|
ALBAN ONWULIRI, Nigeria
|
|
Cost Types in Break Even Analysis
Break Even Analysis is a Management tool in decision making and helps management to classify costs as FIXED or VARIABLE:
- Fixed costs are those cost that are not related to the volume of production, whereas
- Variable costs are those that change as the volume of out put in a production plant changes.
The cost of your electricity bill will in the case of your business be a variable cost. The longer hours you work to produce the product, the higher the electricity cost.
Remember, always that variable costs are those cost that vary directly with the level of output.
To be guided further, there is often a distinction between DIRECT VARIABLE COST and INDIRECT VARIABLE COST:
- Direct variable cost can be attributed to the production of a particular product line or service and allocated to a particular cost center (e.g., raw materials and direct wages, whereas
- Indirect variable costs cannot be directly attributed to a production line or service, but vary with output (e.g., depreciation.
|
|