How to Account for Interest in Break-even Point Calculation?

Break-even Analysis
Knowledge Center

 

Next Topic

Break-even Analysis > Forum > How to Account for Interest in Break-even Point Calculation?

How to Account for Interest in Break-even Point Calculation?
Deepti Namjoshi, HR Consultant, India, Member
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? (...) Read more? Sign up for free
 

Please register now to read all responses and to join this discussion yourself. It's easy and 100% free.

Sign up for free     Log in


 
Interest in Break- even Point Calculation
Arrey Benedict, Management Consultant, Belgium, Member
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, mud-gages and depreciations, (which might generate interest to be paid) mostly constitute long-term criteria (of more than one year). So this automatically categorises all forms of interest costs under fixed expenditure or cost. Therefore calculating Break-Even-Point 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.
 

         
Special Interest Group Leader

Interested? Sign up for free.


Break-even Analysis
Summary
Forum
Best Practices


Break-even Analysis
Knowledge Center

 

Next Topic



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2020 12manage - The Executive Fast Track. V15.4 - Last updated: 20-2-2020. All names of their owners.