The Importance of understanding break even analysis

The Importance of understanding break even analysis First of all, production managers and management accountants need to have a clear understanding of break-even analysis. This analysis is used as a general guideline for business decision making and is important for a number of reasons, including the ability to forecast the future cost and revenues and determine whether the business is making profit or loss, and also be able to develop a pricing strategy. The break-even analysis is based on marginal costing. 2008. Business Basics. 3rd edn. Essex: BPP publishing. The total cost of manufacturing or producing products or services is divided into two main parts = fixed costs and variable costs. Fixed costs are not directly related to the volume of production and should remain broadly constant while variable costs vary directly with the production volume and change directly when the production volume changes. [WWW]. http://journal .au.edu/au-techno/2007/JUL07/auJourna/Tech_article.09.pdf (20 November 2008) The Break-even point (BEP) is the point at which income and expenditure are equal, and so neither a profit nor a loss is made. When calculating the break even point the total fixed costs are divided by the contribution per unit. The contribution is the difference between the sales revenues and the marginal cost of sales (variable costs). 2008. Business Basics. 3rd edn. Essex: BPP publishing. Fixed Costs (FC) = Fixed production overheads + Fixed administration overheads + fixed distribution overheads FC = 200000 + 180000 + 120000 =  £500000 Variable costs (VC) = Direct materials + Direct wages + Variable production overheads VC = 350000 +50000 + 200000 =  £600000 VC per 1 unit = 600000 =  £12 50000 SR =1000000 =  £20 50000 Contribution = Sales revenue (SR) Variable costs (VC) Contribution =  £20  £12 =  £8 Break even point (BEP) = Fixed costs (FC) Contribution BEP = 500000 = 62500 units 8 Margin of safety (%) = 50000 62500 100 = -25% 50000 The business is left with 25% of their sales. Taking the role of the management accountant evaluate each of the four alternatives. Pay Salespeople a 10 % commission, in anticipation of them selling more and the business reaching the break-even point. FC =  £500000 VC =  £12 +  £2 (10% commission of SR) =  £14 SR =  £20 Cont =  £20  £14 =  £6 BEP = 500000 = 83334 units 6 The original sales = 50000 units 83334 50000= 33334 units 33334 100 = 66.7% 50000 By choosing this option sales production and sales would need to increase by 33334 units. This means that the business needs to sell 66.7% of products more than were the original sales to meet the break-even point. The business should consider that if they increase the production the additional warehouse may be needed so the stepped fixed costs will occur. This idea may be considered as an unrealistic. Especially now, the economic crunch is affecting every kind of business and the companies need to be aware of what strategy are they going to use in order to increase their sales. The demand for products is decreasing because people are aware of this economic situation. They are loosing their confidence to buy products. They prefer to buy only necessities. And also the business needs to be aware of what the competitors will do and how they will undergo the present situation. The management accountant should investigate some unpredictable situations. How does the business know that by paying sales people a 10% commission, the business will reach break-even point? Is there a guarantee that the business will sell more? How can we predict that the demand for the products will increase? Reduce the selling price by 10% in anticipation of increasing sales by 30%. Expected sales = 50000 + 30% (15000) = 65000 units FC =  £500000 VC =  £12 SR =  £20 20/10 =  £18 Contribution =  £18  £12 =  £6 BEP = 500000 = 83334 units 6 Profit/Loss = (65000 x 6) 500000 =  £110000 loss Margin of safety (in units) = 65000 83334 = (18334) units Margin of safety (%) = (Expected sales breakeven sales) 100 Expected sales Margin of safety (%) = (65000 83334) 100 = 18334 100 65000 65000 Margin of safety (%) = -0.2821 100 = (28.21 %) By reducing the selling price by 10% the sale should increase by 30%. The break-even analysis presents that even if we sell 15000 units more the business would be left with 18334 units which represents 28.21 % of the production. Reducing the selling price by 10% may be a good pricing strategy that may increase customers demand for the product but even if we sell the expecting amount of units there will be a loss of  £110000, and not just that a new warehouse may be needed because of the increased sales. The stepped fixed costs occur. The management accountant needs to look for external factors which are affecting the demand for the product. Will this pricing strategy lead customers to buy more products? What the competitors will do? Will they decrease the selling price or will they invest money in improvements? Increase direct wage rates from  £4 to  £5 per hour as part of a productivity/pay deal. It is hoped that this will increase production and sales by 20%, but advertising costs would increase by  £50000. Expected sales = 50000 + (20%) = 60000 Direct wages =  £200000 :  £4 = 50000 hours New direct wages =  £5 ÃÆ'- 50000 =  £250000 FC = 250000 + 180000 +120000 =  £550000 VC = (350000 + 250000 + 50000) =  £13 50000 SR =  £20 Contribution =  £20  £13 =  £7 BEP = 550000 = 78572 units 7 Profit/Loss = (60000 x 7) 550000 =  £130000 loss Margin of safety (in units) = 60000 78572 = (18572) units Margin of safety (%) = (78572 60000) = 18572 x 100 = 31% 60000 60000 Increase of direct wages is a good motivation strategy which may increase the production by 20%. However this is not enough to cover the additional increase of wages and advertising costs. This scenario is clearly not a practicable option because the business will be left with 18572 units in the inventory and they will have a loss  £130000 loss. In the present economic situation is very risky to invest in the advertising because there is no guarantee that the demand for the product will increase as people are buying the cheapest products and services. In anticipation to produce and sell more a new warehouse may be needed. This means that the stepped fixed cost will occur. Can the company deal with  £130000 loss? What will the competitors do? Will they invest in the advertising or they will reduce the selling price? Increase sales by additional advertising of  £300000, with an increased selling price of 20%, setting a profit margin of 10%. FC = 500000 + 300000 =  £800000 VC =  £12 SR =  £20 + (20/10) ÃÆ'- 2 =  £24 Contribution =  £24  £12 =  £12 BEP = 800000 = 66667 units 12 Margin of safety (%) = (73334 66667) 100 = 9.1% 73334 Sales Volume to achieve a target profit = Fixed cost + target profit Contribution per unit Sales Volume to achieve a target profit = 800000 + 80008 = 73334 units 12 73334 units need to be produced and sold in order to produce a profit of 10%. This option can be considered as the most prosperous of all 4 options. However the business needs to deliberate that the increase of selling price by 20% is very unsecure. Particularly now the market is very unstable and the companies should try to sell everything they have. Producing more products is very risky. There is no guarantee that the sales would be made. Everything depends on customers. Many examples could be used from news. For instance, sales of cars fell by 23% and people are not going to the restaurant for their meal, they are saving their money and buying only necessaries. The business needs to be aware that the demand for the products is decreasing and not increasing. Why they want to produce more products? Also the business needs to be careful with the investment in adverting. The cost of advertising may be hard to cover. A positive thing is that if the company orders more material to produce more products, the suppliers may offer a discount. The business needs to take in consideration the competitors in the market and what they would do. Will they reduce the selling price or will they invest in advertising? The management accountant should investigate all the factors that may affect the demand for the product and watch the economic situation. What are the limitations of break-even analysis? Do these limitations invalidate it as a reliable business analytical tool? The limitations of break-even analysis The break-even analysis is based on forecasting and has a certain limitations which should be considered. It is not always possible to predict what will happen on the market. The linear relationship is based on the presumption that costs remain constant. However this is not the case in practical market situations. The business may get some discount from its suppliers. Also the business can often reduce its selling price in order to increase its sales volume and this is an efficient strategy known as a non-linear relationship. Scarlett, R. 2007. Management Accounting Performance evaluation. Butterworth-Heinemann The business need to bear in mind that if a production increases or decreases it may result in expansion or reduction of capacity. If the Henllys scenario is used, in each case there is an anticipation of increased sales and production and this means that a new warehouse may be needed. The stepped fixed costs occur and this situation result in multiple break even points. Wood, F. Sangster, A. Business Accounting 2, 2008, 11 edn. Essex: Pearson Education Limited. Pg. 656. Apart from the situation described above the product mix need to be applied as well. Many organisations have more then one product or service and this can have an impact on the apportionment of fixed costs which can become arbitrary. Scarlett, R. 2007. Management Accounting Performance evaluation. Butterworth-Heinemann The break-even analysis is internal and it is not used to consider the things like competition or market demand which means that the business should use other analysis to watch what is happening on the market and what strategies are used by competitors. These limitations explained above invalidate our break-even analysis as a reliable business analytical tool.

China: Overpopulation

The Country of China accumulates over 1/5 the population of the world with a massive total of over 1. 3 billion people. Having an Immense population not only creates problems within the country, but also triggers some of the largest Issues our world has faced today. Although China has released a One-Child policy to slightly limit the population rate, problems are continuing to grow at a constant rate. The most powerful institution in the nation of China is the Communist Party of China, otherwise known as the CPA.They set goals and policy that the government hen sets in motion (Dreamer). The Chinese government is generally thought to be repressive, while freedoms of speech, assembly, religion, and press are not well respected (â€Å"China†). In 1979, the Chinese Communist leader Issued the One-Child Policy to limit the nation's population (Hardwood). There are also exceptions to China's One-Child Policy. For instance, the policy applies only to the Han, who make up about 92% of China's population. The Han are descendants of China's first great dynasty.However, rural couples are allowed to have a second child if the first one was a female (Dreamer). Many believe that this form of policy Is unfair and can disturb the cultures of Chinese families. Years ago, China was once concerned for having had too many people to support. As of today, the One-Child Policy causes the country to have too few children to support a rapidly aging country (Hardwood). Also, because males are more valuable than females traditionally, the female population declines. If the ratio of men increases over women, then the population will also decline too fast (Hardwood).Based on the July 2013 census, the population of China stands at about 1,349,585,838 and continues to grow (â€Å"One-Child Policy'). With several people living In urban areas. It is quite difficult for China's government to force its population controlling policies (Hardwood). Those who don't follow the policy are pena lized with heavy fines, destruction of home or possessions, political/physical harassment, and even loss of employment (â€Å"One-Child Policy†). Even with the policy, China's population still continues to grow at a rapid pace.Some estimates show that nearly 1 million more births occur than deaths every 5 weeks (â€Å"One-Child Policy'). These problems will only continue to expedite adversely If a resolution does not develop soon. There are several causes for the rapidly increasing population, but only a few present itself as the primary source. One of the main factors is the fact that China has a high birth rate and a low death rate. This is due to a lack of family planning, a high level of Infant mortality and increased sanitation.Some cultures also believe that It Is unacceptable to use contraception's (â€Å"China†). Other than the logical causes, there was also said to be an â€Å"Economic Project† which had Increased the population to spark China's econom y. According to sources, â€Å"in 1 978, China embarked on an economic project that liberated foreign trade and investment; encouraging the formation of rural and private businesses as an attempt to raise China's economy (Hardwood). This project ultimately led to people having more children as it was conducive to the economy.The problem of overpopulation and the One-Child Policy affect China In several unemployment are serious problems which continue to rise in China (â€Å"China†). The Chinese government neglected to protect its water, air, and land against pollution. Because of this, China is the world's second largest producer of the dangerous greenhouse gases (Dreamer). For the impacts from the policy, â€Å"Officials of China suggested that the immediate consequences of the policy shift would be relatively minor, although the government's own demographic estimates showed that upwards of 10 million couples will be affected† (â€Å"One-Child Policy').The average h ousehold size in China was also down to 3. 1 people, from 3. 44 in 2000. From an international standpoint, the One-Child Policy impacts the entire world by helping reduce the population. Although people around the world complained that the rule was extreme and unfair, the policy has, in some ways, been effective (Dreamer). With China having a mass number of people living in such packed places, several people tend to immigrate to other countries, which can likely cause other problems within those countries as well (Dreamer).Because China is the most populous country, China attracts several other multi-national companies to set up their businesses in areas holding the largest people. Examples of these companies include Coca Cola, Motorola and Volkswagen (Hardwood). Because several companies set up their businesses in a variety of locations, China is ranked number one for having the fasted growing economy (â€Å"Dreamer†). Solutions to improving the policy are slowly going into effect.After the policy, a system of benefits and penalties went into effect. Couples who signed the policy pledge were sometimes granted rewards including regular payments, easy access to healthcare, education, and even desired Job categories for both the parents and the child (â€Å"One-Child Policy'). In the past year, China's governing Communist Party released a document presenting policy changes in allowing couples to have an additional child if the mother or father was an only child (â€Å"One-Child Policy').Because f the fact that the policy changes suit most people throughout the nation, the country of China may be able to become stable in the future without disturbing too much of the culture (Hardwood). Although China has released a One-Child policy to slightly reduce the population, the changes they have made will allow the country to become stronger and more stabilized. Although the country of China still contains problems due to an immense population. The Communist Par ty of China is still in search for a greater solution to make their nation a better place for both China and the World.

Queen Victorias Golden Jubilee Celebrations

Queen Victoria reigned for 63 years and was honored by two great public commemorations of her longevity as ruler of the British Empire. Her Golden Jubilee, to mark the 50th anniversary of her reign, was observed in June 1887. European heads of state, as well as delegations of officials from throughout the empire, attended lavish events in Britain. The Golden Jubilee festivities were widely seen not only as a celebration of Queen Victoria but as an affirmation of Britains place as a global power. Soldiers from throughout the British Empire marched in processions in London. And in the distant outposts of the empire celebrations were also held. Not everyone was inclined to celebrate the longevity of Queen Victoria or the supremacy of Britain. In Ireland, there were public expressions of protest against British rule. And Irish Americans held their own public gatherings to denounce British oppression in their homeland. Ten years later, Victorias Diamond Jubilee celebrations were held to mark Victorias 60th anniversary on the throne. The 1897 events were distinctive as they seemed to mark the end of an era, as they were the last great assemblage of European royalty. Preparations for Queen Victorias Golden Jubilee As the 50th anniversary of Queen Victorias reign approached, the British government felt that a monumental celebration was in order. She had become queen in 1837, at the age of 18, when the monarchy itself had seemed to be coming to an end. She had successfully restored the monarchy to where it occupied a preeminent place in British society. And by any accounting, her reign had been successful. Britain, by the 1880s, stood astride much of the world. And despite small-scale conflicts in Afghanistan and Africa, Britain had essentially been at peace since the Crimean War three decades earlier. There was also a feeling that Victoria deserved a great celebration as she had never celebrated her 25th anniversary on the throne. Her husband, Prince Albert, had died young, in December 1861. And the celebrations which likely would have occurred in 1862, which would have been her Silver Jubilee, were simply out of the question. Indeed, Victoria became fairly reclusive after Alberts death, and when she did appear in public, she would be dressed in widows black. In early 1887 the British government began making preparations for the Golden Jubilee. Many Events Preceded Jubilee Day in 1887 The date of large public events was to be June 21, 1887, which would be the first day of the 51st year of her reign. But a number of associated events began in early May. Delegates from British colonies, including Canada and Australia, gathered and met with Queen Victoria on May 5, 1887, at Windsor Castle. For the next six weeks, the queen participated in a number of public events, including helping to lay the cornerstone for a new hospital. At one point in early May, she expressed curiosity about an American show then touring England, Buffalo Bills Wild West Show. She attended a performance, enjoyed it, and later met cast members. The queen traveled to one of her favorite residences, Balmoral Castle in Scotland, to celebrate her birthday on May 24, but planned to return for London for the major events which would take place close to the anniversary of her accession, June 20. The Golden Jubilee Celebrations The actual anniversary of Victorias accession to the throne, June 20, 1887, began with a private commemoration. Queen Victoria, with her family, had breakfast at Frogmore, near the mausoleum of Prince Albert. She returned to Buckingham Palace, where an enormous banquet was held. Members of various European royal families attended, as did diplomatic representatives. The following day, June 21, 1887, was marked with lavish public spectacle. The queen traveled by a procession through the streets of London to Westminster Abbey. According to a book published the following year, the queens carriage was accompanied by a bodyguard of seventeen princes in military uniform, superbly mounted and wearing their jewels and orders. The princes were from Russia, Britain, Prussia, and other European nations. The role of India in the British Empire was emphasized by having a troop of Indian cavalry in the procession close to the queens carriage. Ancient Westminster Abbey had been prepared, as galleries of seats had been built to accommodate 10,000 invited guests. The service of thanksgiving was marked by prayers and music performed by the abbeys choir. That night, illuminations lit the skies of England. According to one account, On rugged cliffs and beacon hills, on mountain peaks and lofty heaths and commons, great bonfires blazed. The next day a celebration for 27,000 children was held in Londons Hyde Park. Queen Victoria paid a visit to the Childrens Jubilee. All the children attending were given a Jubilee Mug designed by the Doulton company. Some Protested the Celebrations of Queen Victorias Reign Not everyone was favorably impressed by the lavish celebrations honoring Queen Victoria. The New York Times reported that a large gathering of Irish men and women in Boston had protested the plan to hold a celebration of Queen Victorias Golden Jubilee at Faneuil Hall. The celebration at Faneuil Hall in Boston was held on June 21, 1887, despite pleas to the city government to block it. And celebrations were also held in New York City and other American cities and towns. In New York, the Irish community held its own large meeting at Cooper Institute on June 21, 1887. A detailed account in the New York Times was headlined: Irelands Sad Jubilee: Celebrating in Mourning and Bitter Memories. The New York Times story described how the capacity crowd of 2,500, in a hall decorated with black crepe, listened attentively to speeches denouncing British rule in Ireland and the actions of the British government during the Great Famine of the 1840s. Queen Victoria was criticized by one speaker as Irelands tyrant.

Rhetorical Analysis Of The Longest War By Rebecca Solnit

For my rhetorical analysis, I read Rebecca Solnit’s essay â€Å"The Longest War,† which shed a light on the unequal treatment of men and women and the violence that women face throughout their lives, and around the world. In analyzing this essay, I looked at the context and the substance of Solnit’s essay. In terms of context, I looked primarily at her use of examples, and where these examples come from. First off, Solnit conveyed messages of gender inequality and violence from around the globe, rather than just throughout the United States. Additionally, she creates ties between the Civil Rights Movement and the women’s rights movement that is currently happening to emphasize the importance of the events to the readers. This strategy is also†¦show more content†¦I realized that the abundance of examples and statistics that she used were a big part of this, because they provide facts that are hard to contest. I used this as the basis for forming my thesis. After this, I went through the essay again and found locations that tied in well to this main idea. This was my method for developing support. I looked at the essay and the context of it and tried to tie in what Solnit was say ing with how I felt about the essay itself. I took this information altogether and saw how Solnit was proving her points and fulfilling her purpose. My strengths in this essay, I believe, are in not just analyzing the information that Solnit provides, but in also analyzing the effect that this information has on the readers. My final body paragraph details both the logical and the emotional responses that Solnit brings up in her audience. Additionally, I feel that I was successful in tying all of the analysis that I supply back to Solnit’s purpose in writing the essay. It is easy to look at the context and the substance of an essay, but to relate it all back to the author’s goal in writing it is what shows that you have a fuller understanding of the work. In writing this essay, I started out by trying to analyze far too much of what Solnit had written. Along with the substance and the context of the essay, I wanted to get deeper into her organization and other smaller details of her writing. In â€Å"The Longest War,† Solnit