Answer to Question #208248 in Macroeconomics for Carlin

Question

A)  What benefits can be derived from break even analysis? 

B) What data are necessary to construct a break-even chart?

 

Answer 1

A corporate organization can use break-even analysis to:

(a)Profit and loss are calculated at various stages of production and sales.

(b)Predict the impact of pricing adjustments on sales.

(C)Investigate the connection between fixed and variable expenses.

(d)Predict the impact of changes in cost and efficiency on profitability.

B. Fixed costs / (Sales price per unit – Variable cost per unit) = Breakeven quantity

Where

Fixed costs are costs that do not change as output does (e.g., salary, rent, building machinery).

The selling price (unit selling price) per unit is the sales price per unit.

The variable expenses spent to generate a unit are referred to as variable cost per unit.