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Pete
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Measuring Improvement in Break Even Point
If one compares the break even point over 2 different time periods for the same entity, but on different cost structures (variable and fixed), and different sales, how do you measure improvement in the break even point?
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shoakat
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BEP
I think BEP should only relate to fixed costs as the idea is once they have been recovered, each additional unit of output is generating extra income. Different sales figures are irrelevant in terms of variable costs however with each additional unit of output would reduce fixed cost per unit.
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Alpin McGregor
freeelance, United Kingdom
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Break Even Point
Break even point is calculated at a moment in time. It does not cover several periods. If you recalculated break even point at some other time then the improvement will be indicated by a lower break even point. This will have occurred because of one or a combination of the following changes. Selling price has been increased, unit variable cost has decreased, fixed costs have decreased. If break even point is higher (ie deteriated because you need to sell more to break even) then the opposite of the above will have occurred. I think what you are really looking for is the answer supplied by sensitivity analysis.
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