ABSTRACT: This research work is an appraisal of the “EFFECTIVE APPLICATION OF BREAKEVE ANALYSIS IN MANUFACTURING FIRMS”. This work is firmly directed towards, the need and usage of breakeven analysis by managers and accountants in manufacturing firms. Breakeven analysis is a management tool that could be used in making vital decisions when a firms is faced with problems having lost, volume and profit implication However, breakeven analysis can be a valuable and reliable decision making tool if it is exhaustively conducted and applied. Based on the findings, some recommendation on two to revert the situation towards effective application were made which include:
Hence, we therefore conduce that if the above mentioned recommendations are understood, accepted and implemented. Our manufacturing firms will be able to make better cost-volume-profits decisions, which will result is increased efficiency of the manufacting sector or industry.
TABLE OF CONTENTS
1.1 Objective/ purpose of the study
2.1 Functions
2.2 Ways of Regulations
3.1 Conclusion
CHAPTER ONE
1.0 INTRODUCTION
In considering how the management accountant can be assistance in producing answer to questions about the consequences of following a particular course of action. Such questions might include: What would be the effects of profits if we reduce our selling price and sell more units? What sales volume is required to meet the additional fixed charge from a proposed plant expansion? Should we pay our sales personals on the basis of salary only or on the basis of commission only, or by a continuation of both? These and other questions can be considered using Breakeven Analysis which is the most widly known form of cost-volume-profit analysis. For this reasons, the two terms are used interchangeably by many.
Breakeven analysis is a systematic method of examining the relationship between changes in volume (that is output) and changes in total sales revenue, is a specific way of presenting and studying the inter relationship between cost-volume and profit. As a model of these relationships. Breakeven analysis simplifies the real work condition which a firm will face. It provides information to management in most lucid and precise manner and it is an effective and efficient financial reporting system.
Breakeven analysis is based on the relationship between sales volume, cost are profit in the short run, the short run being a period which the output of a firm is restricted to the same available from the current operating capacity. In the short-run some input can be increased but other cannot.
Hence, breakeven established a relationship between revenue and cost with respect to volume. It indicates the level of sales at which costs and revues are in equilibrium. The equilibrium point in commonly known as the breakeven point. The breakeven point is the point of sales volume at which revenue equal to total costs. It is a point of no loss.
One of the important prerequisites of using the breakeven or C-V-F analysis is that costs can be separated into fixed costs and variables costs, variable costs change in direct proportion to change in volume of activity which fixed cost remains constant to any given volume of activity. For the breakeven point to occur, its necessary that the firm has both variable and fixed costs. If all costs of the firm were variable no profits no loss situation will arise at zero sales volume and profits would be varying proportionately with sales. On the then hand, if all costs were fixed the breakeven would occur at a point were revenue are equal to fixed costs and afterwards profits would be equal to the sales volume.
1.1 PURPOSE OF THE STUDY
Some people do not know the benefits of effective applications of breakeven analysis which has a tremendous positive effects on the profitability of manifesting firms this however is designed to do the following:
1.2 SIGNIFICANCE OF THE STUDY
This study will enable the management accountants know the advantages and interpretation to management. This work will also help students who will study related courses in future to make use of this work in their academic and research work. It is also working of note that the recommendation in this research work will help to solve some of the problems encounted by the accountants.
Nevertheless, since the project work would be in the library there is always the accessibility to these members of the public, they can read and become aware of the better performance that is associated with the effective and efficient application of the breakeven analysis in manufacturing firms. This will increase their knowledge no doubt.
1.3 SCOPE OF THE STUDY
A research into the effective application of breakeven analysis in manufacturing firms is a wide topic. It involves an extensive and objective research into the policy objective and business activities of all the different types of manufacturing firms in Nigeria both at the Federal and State Level, considering that there are different historical, Political Social and Economic motives for setting up manufacturing firms and differences in orientation at the Federal and State Level as well as the large members of the manufacturing firms in existence, the study consequently becomes Invariably a difficult one.
In an effort to keep the research work within the spectrums considering limited time and resources. The researcher has localize and confirmed the study of manufacturing firms using three (3) manufacturing firms in Enugu Metropolis as the case study.
The manufacturing firms are:
The examination of the these effective application of breakeven analysis in manufacturing firms is the limit of the study. This work is concerned with effectiveness of the use of breakeven analysis as a result it is limited to measuring the adequacy and not the properties in the us e of this decision tool. There are two major approaches to the analysis of cost-volume-profit inter-relationship. They are
For concentrated and through probe, this work examined the accountants alternative and how it is used by accountants. Finance is also a limitation to this study because to collect comprehensive data required, funds are needed for the smooth conduct of the project.
Through adequate confidentiality of subject answers in promised the data collected cannot be said to be without bias. Some questions may be ticked wrongly by the respondents just to feign usage of scientist decision making models. I am not trying to asset “Bias response” occurred but have just made a statement with probabilities undertones on what may have occurred during the data collection stage of this research.
However these limitations were not allowed to destroy the essence of the project work.
1.5 DEFINITION OF TERMS
BREAKEVEN This is a situation where neither profits not loss
is made or incurred.
BREAKEVEN POINT These are the relation which exists between
cost, prices, volume of production and profits
of business. They are also known as cost-
volume-profit relationship.
BREAKEVEN RATIONS These are the algebraic expression of
breakeven relationships.
BREAKEVEN BAISCE ANALYSIS This is the primary cost-volume
profit analysis that assumes
certainty.
CONTRIBUTION MARGIN This is the difference between selling
price and variable cost.
MARCUR OF SAFETY This is the difference between the
breakeven point and an anticipation or
existing level of activity.
FIXED COSTS These are costs that remains fixed in
total over a givens range of productivity
and for a given time.
SEMI-VARIABLE – COST This is a cost that possess both variable
cost and fixed cost characters this in that
&n
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