
Deepti Namjoshi HR Consultant, India

How to Account for Interest in Breakeven Point Calculation?
Hi, I am clueless as to how to calculate BEP when other operating expenses such as interest are involved. How is interest considered in the formula for BEP calculation?
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Arrey Benedict Management Consultant, Belgium


Interest in Break even Point Calculation
Please my dear colleague, let me first of all repeat to you the formula to compute the BEP:
BEP = TFC / (SUP  VCUP)
Which means Total Fixed Cost divided by the Sales Price per Unit minus the Variable Cost per Unit.
Further cost analysis states that Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC).
 Normally all cost accruing from interest can be categorised under Fixed Costs, because investments on loans, mudgages and depreciations, (which might generate interest to be paid) mostly constitute longterm criteria (of more than one year). So this automatically categorises all forms of interest costs under fixed expenditure or cost. Therefore calculating BreakEvenPoint under an "interest payable" circumstance augment our fixed costs column.
 Nevertheless, all interests payable with a short term characteristic (less than 1 year) are instead to be categorised under variable costs.
Hope this would help your understanding. Thanks.




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