Question

ScenarioYou are working as a graduate within the engineering department of a manufacturing and consulting focused public listed company. You and your team are working on the post-COVID recovery and how best to allocate capital.The entire department is going to have a conference call next week and you have been asked to prepare a memo for the team regarding the financial options being considered.As the accounting department will be joining,your memo is to prepare the staff for the call.The accountants are expected to use terms which may not be fully understood by the greater department. So your memo will be distributed before the call or you may be asked to speakon the call to assist everyone's understanding. The memo should discuss each of the following:

Some employees have raised their concern that the new product line will not be profitable and that it will cost more to produce.Explain the break-even point with particular focus on why a break-even point is not immediate but rather is reached overtime.

Guidelines:

1.Clear explanation of Break-Even analysisfor the product line.

2.Includes how fixed and variable costs affect the break-even point.

Answer 1

As the part of this case based analysis ,The break even analysis is a major tool for the profitability of individual as well as product mix. The break even point at which no profit and no loss situation.The point at which the identification and analysis of that particular point and the above area can help to identify to analysis the product mix is going profitable or not. So if a company have different product in same product line that means a product mix which the company firstly try to measure the profitability of the targeted sales and targeted profit. And also made a total product line target sales decided by the way of breakeven analysis.

2) Break even point is calculated by way of fixed cost per unit cost and substract the variable per unit cost. Or the total fixed cost divided with the selling price minus variable cost.
The propotion of fixed cost variable cost are very directly depend on the break even point.The margin of safety or the profitable areas of breakeven analysis used to the total cost including fixed and variable cost and the sales intersect point can said as breakeven point.