Break Even Analysis Essay

The break-even analysis relies on computations of several elements such as total cost (TC), total fixed cost (TFC), average net revenue (ANR), average variable cost (AVC),

The break even values for a profit model are the values for which you earn $0 in profit. Use the equation you created in question one to solve P = 0, and find your break even values.

The company’s financial statements appear to be quite clear and strong as compared to the industry. Still the operating costs are high but average as compared with the industry. The reasons behind the prices might be the high cost of commodities,

It helps managers a lot in evaluating future courses of action regarding pricing and the introduction of new services. CVP analysis or Breakeven is used to compute the volume level at which total revenues are equal to the total costs. When total costs and total revenues are equal, the organization is said to be “breaking even”. Managers can utilize P&L statements which are used to project profit or net income. P&L statements can be developed to serve decision making purposes. These can be created for any subunit within an organization, whereas income statements are created only for the overall accounting entity. Break even analysis contains important assumptions and is very essential to the managers to determine whether assumed values can be realistically achieved. Managers can perform CVP analysis to plan future levels of operating activity and provide information about:

4. How can break-even analysis help Live Nation executives develop artist compensation packages and pricing decisions? In order for Live Nation to develop the artist compensation packages in place to get a pricing decision to based on Madonna and Jay-Z record sales and using break-even analysis formula.

The next section we are going to look at is operating expenses. By having a higher increase in revenue, it is more likely that the operating

The break-even point can be expressed in two ways. It can be expressed in terms of units, and it can be expressed in terms of sales amount. The formula for the break-even point expressed in units is as follows:

The objective of Break-Even Analysis is to establish what will happen to the financial results if a specified level of activity or volume fluctuates. This information is vital to management, as one of the most important variables influencing total sales revenue, total costs and profits is output or volume.

Cost drivers are factors that if changed, can cause change in the total amount of a given cost.

1. Such analysis allows the firm to determine at what level of operations it will break even and to explore the relationship between volume, costs, and profits.

Break-even analysis calculates the unit or dollar sales needed to generate revenues that exactly match fixed and variable costs to produce net profit of zero. The advantage of break-even is its utility and simplicity.

Therefore, the costs of rent, permits, and licenses will remain the same because revenues do not affect them. Instead, the property owners set the rent prices with little consideration of the revenue of the enterprise, whereas the government sets the costs of permits and licenses based on policy and not the revenue of the business. On the other hand, a revenue increase signals an increase in operations of the company. Consequently, the costs of electricity and discounts will also increase because of their dependence on operational activities at the enterprise. Lastly, regarding salaries, the fixed component of it, comprising of managerial and other costs will remain the same. However, the variable component of the salaries will increase as the revenue increases. Similarly, as for the repair and maintenance, the fixed component will remain the same as the variable component increases. The sum effect will be an increase in mixed costs, which will be lower than variable costs due to the effect of fixed costs within the wider mixed

Mock recommends using break-even analysis. It is the volume level between expenses and incomes. A good financial manager needs to make sure that expenses should not be greater than incomes. An effective financial management avoids leading to a damage. The author describes that decrease the unnecessary factor in order to increase incomes and expenses. In

2-14. Three ways of lowering a break-even point are lowering your expenses, lower the product levels and reducing your staff.

Cost and expenses are also considered as vital economical indicators. Cost is "the total money, time and resources associated with a purchase or activity." (http://www.investorwords.com/1148/cost.html) Expenses are "any cost of doing business resulting from revenue-generating activities." (http://www.investorwords.com/1842/expense.htmlz0