Business, 21.02.2020 16:34 lilybrok04

"Breakeven analysis isn't very useful to a company because companies need to do more than break even to survive in the long run." Explain why you agree or disagree with this statement. Be specific in your reasons. Why even perform cost-volume-profit (CVP)

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Answer from: josecano2

No, I do not agree, with the statement. See below the explanation.

Explanation:

Cost Volume Profit analysis (CVP) is the analysis of the relation of the number of units produced and sold, the price, the costs, the revenues, and the profit.

Naming x the number of units, u the unit cost of producing, F the fixed cost, C(x) the total cost, R(x) the revenue, p the price, and P(x) the profit, you can write these functions:

C(x) = F + u.xR(x) = p.xP(x) = R(x) - C(x)P(x) = p.x - (F + u.x)

The final equation, P(x) = p.x - (F + u.x) shows the realation of the profits with number of units, the unit price, the fixed costs, and the unit cost.

Then, through a CVP analysis, the firm will be able to figure out how the different factors influence their profit and plan adequately.

Breakeven analysis is a particular case of CVP where the attention is focused in the point when P(x) = 0, to determine the number of units that must be produced in order for the firm start having economical benefits.

Regarding the question about the statement "Breakeven analysis isn't very useful to a company because companies need to do more than break even to survive in the long run", I cannot agree because, learning how many units needed to be produced to start having profits, can lead to important decisions:

is it possible to reach that number of units with the current technology?is it possible to have the market sharing to sell the number of units?how many years will it take to reach the required level of production?is it worthy continuing producing or should the firm swift to other product?

I mean the breakeven point helps to focus the attention in some market or financial aspects to make a strategy.

Answer from: Quest

Answer supply chain management;

Answer from: Quest

Answer the reduction in economic surplus resulting from not being in competitive equilibrium;

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