Answer to Question #207857 in Economics 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

The use of options for financial stability makes it possible to assess the efficiency of the enterprise and the minimum volume of goods output in order to achieve results such as profit and non-deficit financial flows. Analysis of break-even points in both monetary and physical terms is especially important in times of crisis, with an acute shortage of funds.

Unaccounted for expenses

It happens that the volume of output is greater than the break-even point, all products are sold and paid for, but no matter how hard you try, there are still no financial resources in the desired volume. This does not indicate an erroneous calculation or inapplicability of this approach, but rather indicates unaccounted for costs:

Organizational costs are important and are often overlooked in an effort to control production costs.

Tax accounting. Economists often ignore them when calculating the break-even point because they are not part of the production cost.

Accounting for other income and expenses.

Accounting for the costs associated with the financial development program, the maintenance of the social sphere, etc.

Tax on the amount required to be paid.

Improving approaches to calculating the break-even point, that the calculation of the classical break-even point is sometimes not enough, therefore the concept of a real break-even point was introduced.