The document discusses break-even analysis which is used to evaluate investment projects. It defines fixed and variable costs and provides the equation to calculate the break-even point. The break-even point determines the minimum sales needed to avoid losses. Break-even analysis helps management make decisions by identifying risks and determining production levels needed for profits. While it provides advantages in planning, it also has disadvantages due to inaccurate assumptions and difficulty estimating some costs.
The document discusses break-even analysis which is used to evaluate investment projects. It defines fixed and variable costs and provides the equation to calculate the break-even point. The break-even point determines the minimum sales needed to avoid losses. Break-even analysis helps management make decisions by identifying risks and determining production levels needed for profits. While it provides advantages in planning, it also has disadvantages due to inaccurate assumptions and difficulty estimating some costs.
The document discusses break-even analysis which is used to evaluate investment projects. It defines fixed and variable costs and provides the equation to calculate the break-even point. The break-even point determines the minimum sales needed to avoid losses. Break-even analysis helps management make decisions by identifying risks and determining production levels needed for profits. While it provides advantages in planning, it also has disadvantages due to inaccurate assumptions and difficulty estimating some costs.
total volume of production, such as (tax costs, overhead costs, and interest costs).2. Variable costs: they change with the volume of production, that is, if the volume of production increases, the variable costs increase, and if the volume of production decreases, variable costs such as (labour costs, electricity costs, fuel costs, nutrition costs, treatment costs, and goods costs) decrease.Types of costs: • The equaliser point can be calculated by the following equation:BEP = TFC / SUP - VCUPWhere :Equaliser = BEPFixed cost = TFCSales price per unit = SUPVariable cost = VCUPThe big benefit of analysing the breakeven point: determining the minimum amount necessary for the business to prevent losses.The effect of the breakeven point on the engineering economy:Know the impact of increasing and decreasing costs on the profits of the organisation.Determine the volume of production needed to make a profit or avoid loss.Help management make decisions such as adding a new product or stopping a product that causes loss.Determine the right time for the investment to generate a positive return. • The advantages of breakeven point analysis:Disadvantages of break- even analysis:Identify the strengths and weaknesses of the investment project.Determine the amount of financial risk that you may be exposed to if the project is implemented.Determine the quantity of production through which profit will be realised or know the losses.The unreality of the assumptions on which the analyses are based.It depends on the distinction between fixed costs and variable costs. Such a distinction is inaccurate. Some costs are difficult to estimate. • "Allergy analysis". It is one of the means used in the process of evaluating investment projects.It means measuring the effects of changes that may occur in the investment project.Allergy analysis: