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Discuss the various uses for break-even analysis

A new business must know what gross sales volume level it must achieve to reach the break-even point before it can record a true profit. Breakeven analysis determines the operating costs for a business, as well as records its absolute profits. Thus, even a "mature business would be wise to look at their current break-even point and perhaps find ways to lower that benchmark to increase profits. The recent massive layoffs at large corporations are directed at this goal, lowering the break-even point and increasing profits." (Business, "Break-Even Analysis, 2003) What factors would cause a difference in the use of financial leverage for a utility company and an automobile company' Utility companies are often legal monopolies, controlled by the government, or experience only limited local competition, unlike automobile companies that are private and experience international and national competition. Financially, the automobile company has greater opportunities to expand its profits but also a greater opportunity to experience greater losses in an indeterminate competitive environment. Specifically, in terms of financial leverage, the automobile industry also has a greater proportion of fixed costs than the utility industry, and thus may be less attractive in terms of securing financial leverage. (Scott, 1998) But the automobile company has more areas of potential profit making, as well as more areas on its books to accrue potential losses, because of costs it must put into its production. Explain how the break-even point and operating leverage are affected by the choice of manufacturing facilities (labor intensive versus capital intensive). The break-even point is determined by a company's operating costs, which include labor. Capital is not factored into a ‘break even' analysis. However, the greater the company's proportion of fixed costs, the less operating leverage it possessesâ...

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