What are the Managerial uses of Break Even Analysis?
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What are managerial uses of Break even analysis?
Breakeven analysis is the relationship between cost volume and profits at various levels of activity, with emphasis being placed on the breakeven point. The breakeven point is where the business neither recieve a profit nor a loss, this is when total money recieved from sales is equal to total money spent to produce the items for sale. Uses of a breakeven analysis Breakeven analysis enables a business organization to: Measure profit and loses at different levels of production and sales. To predict the effect of changes in price of sales. To analysis the relationship between fixed cost and variable cost. To predict the effect on profitablilty if changes in cost and efficiency. Even though breakeven has these advantages or uses, there are also several demerits of break even analysis.
What is Break even analysis and its uses and advantages?
The break even analysis is used to calculate to know whether the business is making a profit or not. A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product. Break-Even Analysis can also be used to analyse the potential profitability of expenditure in a sales-based business. The break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". Therefore has not made a profit or a loss.
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In business is one. A break-even analysis uses equations to help determine what sales volume is necessary to 'break even'. Break even is the point where the revenues are just enough to pay all of the bills (rent, utilities, payroll, products for resale, etc.). After you hit the break-even point, any sales over that, and after the cost of products needed to sell is paid, will be profits. You could use a similar analysis to figure what grade you need to make on a test to push your average up to the next higher letter-grade.
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What are the cost volume profit and break even analysis and what are their uses in business?
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Managerial Economics serves as a link between traditional economics and the decision making sciences for business decision making Critically comment on the statement taking into account the real world?
Managerial economics deals with microeconomics in an industry for strategic decision making. It facilitates the transition from economic theories to economics in pratice. It employs quantitative tools like risk analysis,production analysis ,pricing analysis and capital budgeting. There are lot of factors involved in the business outcome , managerial economics uses the quantitative tools to predict the outcome and help in the decision making. eg of decisions Whether the company has to venture into new products Should a firm continue to be in business in an industry in which it is currently engaged Means to motivate employees in the industry.
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Assumptions of breakeven analysis?
The Break-even Analysis depends on three key assumptions: Average per-unit sales price (per-unit revenue): This is the price that you receive per unit of sales. Take into account sales discounts and special offers. Get this number from your Sales Forecast. For non-unit based businesses, make the per-unit revenue $1 and enter your costs as a percent of a dollar. The most common questions about this input relate to averaging many different products into a single estimate. The analysis requires a single number, and if you build your Sales Forecast first, then you will have this number. You are not alone in this, the vast majority of businesses sell more than one item, and have to average for their Break-even Analysis. Average per-unit cost: This is the incremental cost, or variable cost, of each unit of sales. If you buy goods for resale, this is what you paid, on average, for the goods you sell. If you sell a service, this is what it costs you, per dollar of revenue or unit of service delivered, to deliver that service. If you are using a Units-Based Sales Forecast table (for manufacturing and mixed business types), you can project unit costs from the Sales Forecast table. If you are using the basic Sales Forecast table for retail, service and distribution businesses, use a percentage estimate, e.g., a retail store running a 50% margin would have a per-unit cost of .5, and a per-unit revenue of 1. Monthly fixed costs: Technically, a break-even analysis defines fixed costs as costs that would continue even if you went broke. Instead, we recommend that you use your regular running fixed costs, including payroll and normal expenses (total monthly Operating Expenses). This will give you a better insight on financial realities. If averaging and estimating is difficult, use your Profit and Loss table to calculate a working fixed cost estimate-it will be a rough estimate, but it will provide a useful input for a conservative Break-even Analysis. Illustration 2 shows a Break-even chart. As sales increase, the profit line passes through the zero or break-even line at the break-even point. Illustration 2: Break-even chart The illustration shows that the company needs to sell approximately 1,222 units in order to cross the break-even line. This is a classic business chart that helps you consider your bottom-line financial realities. Can you sell enough to make your break-even volume? The break-even analysis depends on assumptions made for average per-unit revenue, average per-unit cost, and fixed costs. These are rarely exact. We recommend that you do the break-even table twice: first, with educated guesses for assumptions, as part of the initial assessment, and later on, using your detailed Sales Forecast and Profit and Loss numbers. Both are valid uses.
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What is the difference between Economics and Managerial Economics?
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. According to Lionel Robbins, Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Managerial economics, used synonymously with business economics, is a branch of economics that deals with the application of microeconomic analysis to decision-making techniques of businesses and management units. According to McGutgan and Moyer, "Managerial economics is the application of economic theory and methodology to decision-making problems faced by both public and private institutions".