Reference no: EM131788416

Problem

1. How would margin of safety play into Cost-Volume Profit (CVP) and Breakeven analysis?

2. For this question, it's just simply reading another persons statement and giving feedback. No right or wrong answer.

"While breaking even might not seem like much of a business goal, it's an important reference for your financial people. Many owners desire to know how much they need to achieve in sales to realize a profit. Your break-even points provide important benchmarks for long-term planning. The break-even point helps managers make important business decisions to achieve the company's desired income. "Knowing your break-even for areas such as sales, production, operations and investment payback can help you with pricing, debt service and other functions of operating your business" (Johnson, 2015). A break-even point occurs when your revenues cover your expenses. Some costs increase as your sales increase, such as materials, production labor and shipping. These are variable costs. Some expenses don't increase or decrease with sales, such as your rent. These are fixed costs. The break-even point determines the amount of sales needed to achieve a net income of zero. It shows "the point when a company's revenue equals total fixed costs plus variable costs, and its fixed costs equal the contribution margin" (Johnson, 2015)."