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What Is Depreciation and How Do You Calculate It?

Depreciation is an accounting method used by businesses to allocate the cost associated with fixed assets over their useful life. Fixed assets include buildings, machinery, equipment, and furniture. During depreciation, you’ll be sorting different assets into varying classes, with each class having its useful life. You’ll be allocating the useful life of an asset based on the length of time you’ll be utilizing it. This post covers more about deprecation, including accumulated depreciation and the techniques that a business can use to calculate depreciation.

Full Details on How to Use Break-Even Point Formula For Your Business

Simple Definition of Break-Even Point

When can you determine that you reached the break-even point in your business? In simple words, it is the moment when your total revenues equal total costs. Once you reach this point, you should move forward to analyzing two factors: costs and pricing structure. To become profitable, you might need to determine whether your prices are too low so they only cover your overall costs. On the other hand, you might also need to take a close look at your costs and identify the most effective strategy to reduce them.

Learn How to Determine Overhead Costs and How to Calculate Them to Improve Your Business Performance

What Are Overhead Costs?

To begin with, overhead costs provide support to your business activities. They represent indirect expenses that help to run a business. In addition, they do not refer to the process of creating a product or service. If direct costs are aimed at service providing, overhead costs in turn, refer to insurance or rent. On top of that, they differ based on the type of business you plan to develop. For example, the costs associated with rent, insurance, utilities, travel, salaries, depreciation, and different types of taxes can be assimilated as overhead costs. As you can easily conclude, the overhead costs can include both fixed expenses and/or variable costs that occur on a monthly or yearly basis. However, pay attention to not mistake these costs with the direct costs such as labor or raw materials costs, that are not included in overhead costs.