GRENVILLE LTD

Break Even Analysis of Grenville Ltd

Introduction3

Discussion3

What is a break-even analysis?3

When should it be used?4

What is the upside of using it?5

What is the Downside of using it?6

Task-36

a) Difference between Economists Breakeven Chart & Accountant Break Even Chart6

b) Understanding the concept of Fixed Cost8

c) Analysis for the Cost Structures for 2nd Half10

Task 4) Proposal Evaluation10

Proposal 110

Proposal 211

Task 5) A comparison between the two proposals clearly stating any assumptions made12

Recommendation13

Conclusion13

References14

Break Even Analysis of Grenville Ltd

Introduction

Financial analysis tools and techniques help companies in assessing the external and internal financial factors of a company. Such tools are useful in quantifying the financial outcome of a company. In addition, financial tools can be used to evaluate the company's working income, its capital financing development and its overall economic return. This assignment is dedicated at explaining the concept of break even analysis. In addition we are also going to answer several accounting related queries of Grenville Ltd. This report is very helpful for the students of managerial accounting or for individuals having interest in the accounting of accompany.

Discussion

A number of firms make an error of selling their product without completely understanding the total cost incurred and the respective prices. Breakeven analysis is an effective tool that can be used to make better business or investment decisions. Break even analysis is very helpful in developing pricing strategies and overall business plan (Birt, J et. al, 2010, Pp. 20-45). It assists companies in understanding the level of product it needs to sell for generating a specific level of profitabilityAll kinds of organization use break even analysis as a tool to assist their business. Break even analysis is an important factor of making effective decisions. It helps to reduce the uncertainty that organization face and provide statistical figures in numbers. There are multiple ways of applying break even into business setting (Bodie, A., Kane, L., & Marcus, A., 2004, Pp. 70-85).

Break Even analysis is a technique that determines the stage at which total revenues earned by a company are equal to its total cost. At this point there is no gain or loss. Break even point can be calculated with the help of following formula

Break Even Point = (Fixed cost) / (selling price - Variable cost)

Break even analysis includes a point known as breakeven point; that is the point where a business will cover all its costs. This is a point where a business is making no profit or loss. If the business sells more unit than break even, profit will be achieved. A business would incur loss if it sells bellow the breakeven point. Fixed is divided by the contribution to extract the breakeven point. (Meigs, W., & Meigs, R., 1970, Pp. 85-120)

The major application of break even analysis is to apply it for reducing the level of uncertainty in business. Break even analysis let organization know their costs of doing business. It allows decision makers to categorize the costs into fixed costs and variable costs. Variable costs would tell managers about which cost are affected ...