Question 7.RQ.2: What is meant by the BEP for an activity? How is the BEP cal...

Accounting and Finance for Non-Specialists

What is meant by the BEP for an activity? How is the BEP calculated? Why is it useful to know the BEP?

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The BEP is the break-even point, that is, the level of activity, measured either in units of output or in value of sales revenue, at which the sales revenue exactly covers all of the cost, both fixed and variable elements.

Break-even point is calculated as

Fixed cost/(Sales revenue per unit – Variable cost per unit)

which may alternatively be expressed as

Fixed cost/Contribution per unit

Thus break-even will occur when the contributions for the period are sufficient to cover the fixed cost for the period.
Break-even point tends to be useful as a comparison with planned level of activity in an attempt to assess the riskiness of the activity.

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