This KPI informs you of the number of vehicles that you need to sell to enable your business to reach a point of financial breakeven.
Example:
A) Direct Profit from Aftersales = R1,154,223 B) Company Overheads = R1,452,238 C) Sales Semi-Fixed Expenses = R189.364 D) Total Company Overheads = R1,641,602 (B + C) E) Overhead Absorption = 70.31% (A ÷ D X 100) F) Value of under Absorption R487,379 (D - A) G) Variable Gross Profit* =R1,500 per unit H) Vehicle Breakeven Volume = 325 units (F ÷ G)
Discussion:
This example shows that there is a shortfall in Absorption to the value of R487,379, which means that this business would have to sell 325 units at the average rate of R1,500 Variable Gross Profit per unit to recover this cost at which point your business reaches breakeven.
If Absorption is 100% or higher, then the Vehicle Breakeven Volume is of course zero. However, if Absorption is below 100% then the shortfall will have to be recovered by the Sales Department.
*Variable gross Profit is Vehicle Gross Profit less Variable Expenses. Semi-Fixed are contained within the overheads.