Is it possible to calculate the BEP with the investment instead of the fix costs?

Anonymous A asked on Jun 18, 2019

What's the formula?

3 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Daniel replied on Jun 18, 2019
Imperial College PhD, Rolls-Royce Project Engineer, RWTH Aachen Mechanical Engineer and Business Administrator, Software Engineer

Hi,
it depends on how you define break-even point. Sometimes it is considered as the point where you have zero profits. However, you see it also at times defined as the number of years after you've regained your initial investment through profits over the life-span of a project. I personally disagree with the latter definition and wouldn't use it, but you encounter it in the casebooks, and you should be prepared for it. If fix costs do not play a role, then obviously disregard them. Always ask what is meant by break-even point as the term is at least in the English literature ambiguous, whereas in the German literature it always means the point of zero profits where the break-even sales volume is usually sought.

Hope this help!
Best,
Daniel

Sidi
Expert
replied on Jun 18, 2019
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 90+ candidates secure MBB offers
Book a coaching with Sidi

100% Recommendation Rate

280 Meetings

1,702 Q&A Upvotes

USD 319 / Coaching

Of course. You can calculate a break even point for any fixed reference (fixed yearly costs, investment spend, input utilized, etc.) and any variable (break even volume, break even price, break even duration, etc.).

Cheers, Sidi

Vlad updated his answer on Jun 19, 2019
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School
Book a coaching with Vlad

97% Recommendation Rate

344 Meetings

4,538 Q&A Upvotes

USD 319 / Coaching

Hi,

Investment = source of cash

Fixed costs = use of cash

If you know that the investment is allocated to cover fixed costs for a certain period, then you can calculate the BE for the business:

Formula: (Price - VC)*Q-FC = 0

You can also calculate the breakeven for a specific investment amount as well. In that case, the formula will be: (Price - VC)*Q-FC = INV

Best!

(edited)

Related BootCamp article(s)

Interviewer-Led vs Candidate-Led cases

Case Interviews can be led by the candidate or by the interviewer: In Candidate-led cases the main challenge is the structure. In Interviewer-led cases the main challenge is to adapt quickly

Related case(s)

Bain case: Asian lubricants producer

Solved 88.7k times
4.7 5 26894
| Rating: (4.7 / 5.0)

LubricantsCo, a very successful Asian premium producer of lubricants in their native region, would like to further increase their revenue and profit. The product range ranges from lubricants in the automotive sector (e.g. motor and gear oil) to industrial applications (e.g. fats, heavy-duty oils). ... Open whole case

Bain Case: Old Winery

Solved 28.5k times
4.4 5 773
| Rating: (4.4 / 5.0)

You have inherited the “Old Winery” from your grandfather, a winery which has been family owned for five generations and can be dated back to the 16th century. Half of the eleven hectares are used to grow white grapes, the other half to grow red grapes. They are grown in the conventional way, i.e. ... Open whole case

McKinsey Questions

Solved 30.5k times
4.5 5 827
| Rating: (4.5 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

Tell me of a situation where you had an opinion and no one seemed to agree with you. What was your goal when you decided to join university / work / clubs / a sports team? Did you have a goal that you were not able to reach? What did you do? What do you want to be remembered for and how are you a ... Open whole case

BCG Questions

Solved 20.3k times
4.5 5 176
| Rating: (4.5 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

What arouses your interest when you are working / studying / doing another activity (from the CV)? Tell me of a time where you had no idea what you were doing. When did you use an uncommon approach to do something? Have you ever had responsibility for other people? Tell me of a situation where y ... Open whole case

Bain Questions

Solved 20.1k times
4.6 5 243
| Rating: (4.6 / 5.0) |
Difficulty: Intermediate | Style: Fit interview | Topics: Personal fit

Tell me about a difficult situation you had to cope with. Tell me of a task which you didn’t like doing and explain why you performed it nevertheless. Why do you do things? What do you like doing most / What is your favorite hobby? Walk me through a situation where you showed leadership skills. Open whole case