Range of Capacity Volume in Break Even Analysis
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What is the importance of using a break-even analysis that incorporates more than one range of capacity volume?
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Solution Summary
The solution explains the importance of using more than one range of capacity volume when performing breakeven analysis.
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Plants allocate fixed expenses across a set amount of 'fixed' costs as they conduct a breakeven analysis. For example, a firm might conduct a breakeven analysis knowing that it will have to cover fixed expenses totaling $1,000,000. These expenses include factory overhead, administration, and most sales costs.
However, setting all of these costs as 'concrete' and conducting an analysis at one range of capacity is not feasible as economic conditions might turn creating a situation where even fixed costs must be shed. In ...
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