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Unit 7 - Management Accounting D1 Evaluate the reliability of break-even analysis in estimating budgeted activity levels for a selected organisation£3.47
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Unit 7 - Management Accounting D1 Evaluate the reliability of break-even analysis in estimating budgeted activity levels for a selected organisation. BTEC business level 3 extended diploma. Please leave a review if this was useful for you, thank you!
Benefits of the breakeven analysis
One of the benefits of the break-even analysis is that the business is able to
analyse costs to make sure they are not too high, such as the fixed and the
variable costs of the company. This can help the business to make sure that the
costs are not higher than the revenue as then the business would be making a
loss. If the costs are too high, the business can see if they can be reduced to
improve the breakeven. The business can set a margin of safety; this can help
the business to see how much money they are able to lose before the business
starts making a loss. It can help the business to make sure they do not go
below the breakeven point and start making a loss.
The breakeven analysis can be used to make many important decisions, such
as if the business wants to increase its selling price, such as if Style Clothing
decides to increase the selling price of their products. The breakeven chart will
show the consequences of it, and if the business is deciding to increase their
costs, the breakeven chart will show impact if the business makes that
decision. The break-even chart shows how the changes to the revenue and to
the cost will impact the business.
One of the advantages of completing a breakeven analysis is that it can help to
see if you’re making a profit or a loss, such as you can check to see if the
number of costs is higher than the number of the revenue. This is important to
know because the business can start making changes if it is making a loss, such
as by reducing the variable or fixed costs and also can increase the revenue by
increasing the price of the products or by offering other services or products
etc.
The break-even analysis is easy and simple to set up and does not require any
skills or knowledge; any business owner can set it up, even if they are new to
the financial side. To set up the analysis it just requires knowing all the variable
and fixed costs, the sales revenue and other information. Another benefit of
the breakeven analysis is that it can help a business to set the best price for
their products, for example, if the costs are higher than the revenue the
business can fix this by setting the price that will cover all the costs so the
business can break even or make a profit.
Issues that can arise if the business does not set up a breakeven analysis
Without using the breakeven analysis, the business would not realise if the
costs of the stock and raw materials are too high and therefore wouldn’t make
any changes to them to reducing them or increasing the revenue etc. For
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