Can you please explain some of the potential ways that break-even analysis can be used by management to make better decisions. What is the break-even analysis anyway, and how would it contributing to a health care organization?
Break-even analysis is a tool used to determine when a business will be able to cover all its expenses and begin to make a profit.
<br>Many companies used break-even analysis as a primary screening tool for new business ventures. The break-even analysis lets an organization determine what needs to be sold, monthly or annually, to cover the cost of doing business - thus, the break-even point. It can be used for dealing with unknown variables such as demand. It is a good tool for the following:
<br>1. It's a cheap screening device - break-even analysis can tell you whether or not it's worthwhile to do more intensive costs analysis.
<br>2. It provides a handle for designing product specifications - break-even analysis permits comparison of possible designs before the specifications are frozen.
<br>3. It can serve as a substitute to estimating an unknown factor in making project decisions. While most expenses can be determined, profit and demand are usually missing variables. Demand is usually tougher to estimate.
<br>4. Break-even analysis gives management a way to attack uncertainty. It is a tool that approximate how much you must sell in order to cover your costs with NO profit and NO loss.
<br>Managers often want to know the production level where profits earned from a product cover the cost of resources used to create it. This is where break-even analysis ...