Please read the case scenario illustrated below and help answer these questions.
Changes you would make to help a company with less than acceptable profits. How would suggest making the changes you suggest? What would you do to lower variable costs or how would you reduce fixed costs. Are these costs changeable in the short term or are they long term changes?
What is the breakeven point? What decisions does the breakeven point help an organization to make? What financial actions might an underperforming organization take to reach breakeven point?
The Break-even Point is, in general, the point at which the gains equal the losses. A break-even point defines when an investment will generate a positive return. The point where sales or revenues equal expenses. Break even point = Fixed costs/Contribution margin per unit. The Break even point determines the point of no profit no loss .It studies the relations between fixed costs, variable costs, and profits.
Useful in decision making, break even analysis to solve managerial problems:
setting price levels, targeting optimal variable/ fixed cost combinations, and determining the financial attractiveness of different strategic options for your company. It tells the organization about the quantity to be sold to recover the costs. It also helps in knowing the breakeven point under different scenarios. It tells about the margin of safety of the business.
Financial actions:
I believe that an underperforming company should do following:
- Improve the sales realization per unit
- Reduce the fixed costs
- Reduce the variable costs