Effective Application of Breakeven Analysis in Managements Firms

Effective Application of Breakeven Analysis in Managements Firms

Effective Application of Breakeven Analysis in Managements Firms


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Abstract on Effective Application of Breakeven Analysis in Managements Firms


This work is firmly directed towards, the need and usage of breakeven analysis by managers and accountants in manufacturing firms. Breakeven analysis  is a management tool that could be used in making vital decisions when a firms is faced with problems having lost, volume and profit implication However, breakeven analysis can be a valuable and reliable decision making tool if it is exhaustively conducted and applied.

Based on the findings, some recommendation on two to revert the situation towards effective application were made which include:

ØThat seminar, symposia and workshops on application breakeven analysis should be organized by bodies like the Institute of Chartered Accountants of Nigeria (ICAN), Nigeria Institute of Social Economic Researcher (NISER) Nigerian Institute of Management.

ØThat the Institute of Chartered Accountants of Nigeria should start the publication of a new professional journals in Nigeria devoted solely to the development of the theory and application of management accounting principles and techniques.

Hence, we therefore conduce that if the above mentioned recommendations are understood, accepted and implemented. Our manufacturing firms will be able to make better cost-volume-profits decisions, which will result is increased efficiency of the manufacting sector or industry.


Chapter One of Effective Application of Breakeven Analysis in Managements Firms


In considering how the management accountant can be assistance in producing answer to questions about the consequences of following a particular course of action. Such questions might include: What would be the effects of profits if we reduce our selling price and sell more units? What sales volume is required to meet the additional fixed charge from a proposed plant expansion?  Should we pay our sales personals on the basis of salary only or on the basis of commission only, or by a continuation of both? These and other questions can be considered using Breakeven Analysis which is the most widly known form of cost-volume-profit analysis. For this reasons, the two terms are used interchangeably by many.

Breakeven analysis is a systematic method of examining the relationship between changes in volume (that is output) and changes in total sales revenue, is a specific way of presenting and studying the inter relationship between cost-volume and profit. As a model of these relationships. Breakeven analysis simplifies the real work condition which a firm will face. It provides information to management in most lucid and precise manner and it is an effective and efficient financial reporting system.

Breakeven analysis is based on the relationship between sales volume, cost are profit in the short run, the short run being a period which the output of a firm is restricted to the same available  from the current operating capacity. In the short-run some input can be increased but other cannot.




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