The owner of Back Door has one of her employees conduct a survey of the other coffee shops in the area and finds that they are charging $0.75 more for espresso drinks. They track their costs carefully and use CVP analysis to make sure that their sales cover their fixed costs and provide a reasonable level of profit for the owners. They also sell a variety of baked goods and T-shirts with their logo on them. To demonstrate the effects of changing any one of these variables, consider Back Door Café, a small coffee shop that roasts its own beans to make espresso drinks and gourmet coffee. Using CVP analysis, the company can predict how these changes will affect profits. In either of these situations, costs to the company will be affected. Sometimes, these effects are sudden and unexpected, for example, if a hurricane destroyed the factory of a company’s major supplier other times, they occur more slowly, such as when union negotiations affect your labor costs. The Effects on Break-Even under Changing Business ConditionsĬircumstances often change within a company, within an industry, or even within the economy that impact the decision-making of an organization. Watch this video that shows what happens if one or more of the variables in a break-even analysis is changed to learn more.
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