Breack Even Point Coursework Example | Topics and Well Written Essays - 1500 words

Breack Even Point - Coursework Example The breakeven point is also taken into consideration by the management for finalising the marketing budget and other vital expenses for a particular month, quarter or year. Breakeven analysis is also necessary for new entrants to determine the total capital requirement for starting a business. In reality, majority of the companies need approximately 18 months to reach a point from where they can start making profit. Until then, the company needs extra capital (working capital) to run the business. Breakeven analysis is one such vital tool that assists in understanding when the business will start generating profit, how much extra working capital should be arranged and how much money should be allocated for marketing and other vital activities. The given project will attempt to discuss breakeven analysis in depth to understand how it is conducted, what are the factors that should be used while determining the breakeven point. The concept will be discussed with help of a numeric exampl e so one can understand the real life application of this analytical tool in the decision making process. â€Å"Breakeven point is the point of zero profit† (Hansen, Mowen & Guan, 2007, p.591). In simple words it can be said that breakeven point is a sales volume at which the revenue earned by a firm equals the cost incurred within a specific time period. While developing the business plan for a new venture, the management takes into account different types of costs that will be incurred in the business process. The management then decides the profit margin on the products and hence the final selling price per unit is determined. Considering the total cost as well as the selling price per unit, the management determines the minimum sales so that the company can pay for all the expenses without making any profit. There are two commonly used approaches to determine the breakeven point; it can be