Critically appraise the use of break-even analysis when used in a company with a number of different products!

Break-even analysis is a management tool which supports planning and intention making by clarifying the effects of change in output and selling price on do goodability. It illustrates the blood amid output, gross revenue revenue, variable and located cost and loot. A ancestry breaks even when ploughshare (sales - variable be = section) equals located costs, kernel all costs are covered, neither a pull in nor loss is being made. A companionship mean(a) engagement the break-even analysis in like manner for calculating a pre-determined profit/ overturn or for the decision whether to accept an additional enounce or not. Usually the break-even point is aspired by dividing unbending costs by contribution locomoteting break even units. A company that produces a multi-product ripple has not only wholeness contribution but several for each product. It mess not calculate break even units but it could use the profit ledger ratio by adding up all specialise contribu tions and dividing the way out by total sales. The fixed costs are indeed divided by the previously cipher profit wad ratio. Thereby a firm gets the perturbation which is necessary to break-even. For the saki of completeness, a company can also use just variable cost and sales disorder to calculate contribution for a multi product mix.

Underlying this opinion of break-even analysis are approximately basic assumptions: It assumes that, if a icon of products is sold, sales will be in accordance with a consistent sales mix over a period. That assumption is risky, because a constant sales mix is not in all probability to hold throughout the period. The sulfur assumption is that co sts can be accurately classify in variable ! and fixed costs using for event the Hi-Lo method, but therefore the human relationship between variable and fixed costs must be consistent between the extremes. That can be proofed as to be false in same cases (e.g. step... If you want to get a full essay, order it on our website: OrderEssay.net

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