Break Point Percentage Capacity

Introduction

From the previous section, we already know that:
NI = TR − TC
The business will start making a profit when the total revenue gets bigger than the total costs.
Most businesses need to know the point at which they will begin making profit.
This point begins after they break even and is known as the break-even point.

Break-Even Point as a Percentage of Capacity

We have seen that the maximum number of units that can be sold or produced in a certain time period is called the capacity for the period.
We have also seen how to find the break-even point in units, graphically and algebraically.
The ratio of the break-even point in units to the capacity can be expressed as a percent. This percent is called the percentage capacity.
Break-even point as percentage of capacity = Break-even point in units / Capacity per period

Example: Zoho Enterprises breaks even when they make 55 leather jackets.
The factory's production capacity for the period is 100 jackets.
Question: Calculate the break-even point as a percentage of capacity.

Solution: The capacity per period is 100 jacjets. The break-even point in units is 55.
Break-even point as a percentage of capacity = Break-even point in units / Capacity per period × 100% = 55 / 100 = 55%
Break-event point as a percentage of capacity is 55%.
Zoho Enterprises will break even when they use 65 % of their capacity

Please access the following link to do a similar exercise about break-even point as a percentage of capacity:
Break-Even Point as a Percentage of Capacity exercise


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Date of last modification: March 19, 2019