Tuesday 1 January 2019

Break Event Point Analysis | Benefits

A break even analysis is a way or a technique used by an officer or Manager of the company to find out on the volume (amount) of sales and production volume what is the company in question did not suffer losses and neither is getting a return.

Definition of break even analysis was, "Break even analysis is a management tool that can help restaurant managers examine the relationship between various costs, revenues and sales volumes. It allows to determine revenue required at any desired profit level that called Cost-Volume-Profit (CVP) analysis ".

Which more or less means: break-even analysis is a management tool that can help the restaurant manager to see the relationships between the various costs, revenue and sales volume. Through analysis of the break even, the Manager may also determine the amount of income that is require at a level of achievement to be desire which also refer to the analysis of Cost-Volume-profit.

Definition Of Break Even Point

Break even Analysis is a way to find out the minimum sales volume in order to make an effort not to suffer a loss, but it also has yet to earn a profit in other words its profits equal to zero.

The break even Analysis is an analysis that is use to determine the level of sales and product mix that is need so that all costs that occur in the period cover the analysis, which can point to a point where the company does not earn a profit or suffer a loss.

Analysis of break even or so-called break even Analysis is a means for management to know at this point how the proceeds equal to the amount of the costs so the company does not obtain profits or losses.

Basics of Corporate spending" posit notions of Break Even analysis is as follows:

"Break Even Analysis is a technique of analysis to study the relationship between fix costs, variable costs, profits and volume of activities. Therefore, the analysis examines the relationship between profit-volume-cost, then the analysis is often call the 'cost-volume profit analysis".

Benefit Analysis of the Break Even Point.

Analysis break-even analysis or Break Even Point is very useful for management in explaining some important operational decisions in three different ways but still concern, namely:

  1. Considerations about the new product in deciding how the level of sales to be achieve in order for the company gain profit.

  2. As a basic framework of research the influence of expansion against the operational level.

  3. Assist management in analyzing the consequences of variable costs being shift the cost of innovating working mechanism anyway because with sophisticate equipment.

Also explains some of the benefits management for break even analysis, namely:

  • Help control through the budget.

  • Increasing and balancing sales.

  • Analyze the impact of changes in the volume.

  • The analyzes the impact of changes to the selling price and cost.

  • Negotiate wages.

  • Analyze product mix.

  • Acknowledge the decision of the capitalization and expansion continue.

  • Analyzing the margin of safety.

While analysis of the Break Even Point has a number of benefits, such as:

  • As a base to plan operations in an attempt to achieve certain profit.

  • The basis or foundation for the control activity is running.

  • As a material consideration in determining the selling price.

  • An ingredient or basic considerations in decision-making

Assumptions the basis of analysis of the Break Even Point:

Some assumptions that are influential in break even analysis is as follows:

  • The variability of costs consider to be approaching the behavior patterns that are foreseen.

  • Selling price of the product is not consider changeable at different levels of activity.

  • The production capacity of the factory is consider in relatively constant.

  • Prices of factors of production is consider unchanged.

  • Production efficiency is consider unchanged.

  • Changes in the number of beginning and ending inventories are consider not significant.

  • Composition of the products sold are consider unchanged.

  • Volume is the only factor that affects the cost.

The impact of the changes of some factors in the analysis of the Break Even Point in management accounting:

  • A change in variable costs will lead to a change in contribution margin and break even.

  • Change in the selling price will result in changes to the contribution margin and break even.

  • Number of profit contribution will only be affect by a change in variable costs and the selling price.

  • A change in fix costs resulting in changes to the break even but do not affect the profit contribution.

  • Change combine in fix costs and variable costs in the same direction will cause the change of break even.

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