Essay: Bill French, Accountant Breakeven Analysis

Sample Essay

Break even analysis is a very important tool to help any firm in deciding on the best operational volume. It requires three types of costs namely the fixed cost, variable cost and selling price (Dayananda, et al, 2002). As Bill French puts it, “the level of operation at which total costs that is, variable plus non-variable are just covered is the break even volume” and it is the least volume that an organization should operate in order to remain in business (Harvard Business School, 1987).  There are several assumptions that are made in order to calculate the break even figures since with all the factors considered, it is very hard to compute the figures.

In determining the break even figures for the firm, French makes some implicit assumptions. Most of these assumptions are evident in the conversation he is having with the participants at the meeting. In his calculations, he does not give room for the excepted sales volume increase which according to Cooper, one of the participants from the production department, will increase sales by 20%. He further assumes that the plant capacity is only at 90% utilization implying that it is not fully utilized. However, we learn from Williams who is from the manufacturing department that the plant capacity may be at 100% as he argues that in some of the sectors, there is no room for further expansion.

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