"Profitability threshold" (breakeven point) and methods of distribution of fixed costs

Planning of the industrial enterprise

The next element that is essential in the management of income - is "profitability threshold" (breakeven point). "The threshold of profitability - it is sales revenue, in which the company has losses, but does not and profits." In the economic literature, this figure is also called the "breakeven point", "broke even (or non-profit) turnover", "critical point" and so on. D.

Company "Alpha" specializes in the production of furniture. There are three main types of products: bookshelves, garden furniture sets, kitchen sets. Proceeds from the sale of all products -456.5 thousand. UAH., The indirect costs - 164 thousand. UAH. Indirect costs are allocated in proportion to the products of labor costs in manufacturing, bookshelves - 0.12 hours. unit, set of garden furniture -0.6 hr., a set of kitchen furniture - 0.9 hours.
The calculation results of three methods: in proportion to the number of hours spent on product sales revenue and profit margin. Margin theory says, the "breakeven" profit margin is fixed costs.
If the enterprise proportionately reduce the number of items for each item, you can reach a level that characterizes the "break-even turnover" not only for the company as a whole but also for each product separately. This situation shows "break-even ratio" (kb), calculated as the ratio of "break-even turnover for the whole enterprise" (6ob) in proceeds from the sale (RP).

Further, the technique is very simple. Multiplying the value of kb to the profit margin on products, find the value conventionally fixed costs pryhodyatsya on a group of products. And kb by multiplying the number of items in the plan, obtain the "breakeven" on specific goods in kind. To obtain the "breakeven point" in
In turn, Bob the enterprise as a whole the ratio is calculated as the product of "fixed costs" (Vpost) in proceeds from the sale (RP) to the profit margin (M).

Comparison values ​​"conditionally fixed costs" in the products obtained by various methods, shows significant differences. Especially very different this value, defined by "proportional labor costs." *
Naturally, the "breakeven point", calculated by different methods differ significantly. But one should note that the value of "break-even turnover" for the whole enterprise too different, but this should not be, because in the same structure range, constant prices and costs value "break-even sales" can have several meanings.

Other methods of distribution of fixed costs (labor costs proportionally, revenue from the sale, the number of hours spent machine-or any combination base) does not take into account that the "margin of safety" (ratio of profit to the profit margin) for the products differs significantly.
In this connection, will be distorted and characteristics of the "stock of financial strength" (the difference between the proceeds and "broke even turnover") and "forces operating leverage."
The economic literature "breakeven rate" is not found, but the economic sense it is close to the famous indicator "safety margin."