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    Break-Even Analysis and Impact on Profitability

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    1. Research the economic costs involved in conducting a break-even analysis for a good or service of your choice. Assess the factors involved in conducting a break-even analysis. Determine the conditions that may exist for a manager of this good or service may decide to move forward with operations even with the initial costs of operations is more than the potential revenue.
    2. Imagine you are a manager of a chemical company. An accident has occurred in which chemicals leaked into the ground water nearby; the community is unaware. Assess the costs involved in cleaning up the water immediately (confessing) versus hiding the fact and possibly paying more in the future. Discuss the impact on profitability in both situations.

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    Solution Preview

    1. To conduct a break-even analysis you need the fixed costs and the variable costs. In addition, you need the price of the product. Say you make and sell a coffee making machine. The price is $500, the variable cost is $250, and the total fixed cost is $12,500. The contribution to the fixed cost is $500 less $250 equals $250. When we divide $12,500 with $250 we get 50 coffee making machines. The breakeven point is 50 coffee making machines.
    The conditions under which a manager may make coffee making machines even if the initial costs of operations is more than the potential revenue is when the ...

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    This posting gives you a step-by-step explanation of Break-Even Analysis. The response also contains the sources used.