登录查看更多内容

How do you monitor and adjust the break-even point as the project progresses?

由人工智能和领英社区提供技术支持

Capital budgeting is the process of evaluating and selecting long-term projects that generate cash flows and add value to the business. One of the key metrics used in capital budgeting is the break-even point, which is the level of sales or output that covers all the fixed and variable costs of the project. Knowing the break-even point helps you decide whether a project is worth pursuing, how much financing you need, and how much profit you can expect.

But the break-even point is not a static number. It can change over time as the project progresses and as the market conditions, costs, and revenues vary. Therefore, it is important to monitor and adjust the break-even point as the project progresses, to ensure that the project remains viable and profitable. Here are some steps you can take to do that.

此文章中的业界达人

由社区从 3 条内容中精选。了解更多

Meng Hock Tan ????

External Audit | Financial Reporting | Know Your Client Compliance | Big Four | Associate Member of the Institute of…

1 Track actual costs and revenues

The first step is to track the actual costs and revenues of the project on a regular basis, preferably monthly or quarterly. You can use accounting software, spreadsheets, or other tools to record and analyze the data. Compare the actual costs and revenues with the projected ones in your capital budgeting analysis, and identify any significant deviations or trends. For example, you may find that your variable costs per unit are higher or lower than expected, or that your sales volume or price are different from your forecast.

添加您的观点

Meng Hock Tan ????

External Audit | Financial Reporting | Know Your Client Compliance | Big Four | Associate Member of the Institute of Singapore Chartered Accountants (ISCA)
举报内容
We can use the variance analysis to compare the flexible budgets to the actual results for both revenue and expenses, for this I have also covered in other articles within the Capital Budgeting topic. One very important point to note is that for performing capital budgeting analysis, we always exclude depreciation expenses from the analysis because they are considered non-cash items.

已翻译

赞

2 Calculate the current break-even point

The next step is to calculate the current break-even point of the project, based on the actual costs and revenues. You can use the following formula to do that:

Break-even point = Fixed costs / (Revenue per unit - Variable cost per unit)

For example, if your fixed costs are $100,000, your revenue per unit is $50, and your variable cost per unit is $30, your break-even point is:

Break-even point = 100,000 / (50 - 30) = 5,000 units

This means that you need to sell 5,000 units to cover your costs and start making a profit.

添加您的观点

Meng Hock Tan ????

External Audit | Financial Reporting | Know Your Client Compliance | Big Four | Associate Member of the Institute of Singapore Chartered Accountants (ISCA)
举报内容
You can make use of the breakeven analysis to calculate the breakeven point. The breakeven point refers to the production level at which total revenues equal total expenses. It is an accounting technique that uses the relationships among sales volume, sales price and total costs (i.e., Fixed Costs plus Variable Costs) to evaluate how short-term profits can be affected by various operating decisions. In a way, we are actually evaluating tactical decisions (i.e., decisions that are within the next 12 months period). Break-even Point in Units = Fixed costs / Contribution Margin per unit Note: Contribution Margin per unit = Revenue per unit - Variable cost per unit Contribution Margin per unit also known as Unit Contribution Margin.

已翻译

赞

3 Compare the current break-even point with the projected one

The third step is to compare the current break-even point with the projected one in your capital budgeting analysis, and assess the impact on your project's profitability and feasibility. If the current break-even point is lower than the projected one, it means that you are performing better than expected, and you can achieve your target return sooner or with less sales. If the current break-even point is higher than the projected one, it means that you are performing worse than expected, and you need to increase your sales or reduce your costs to reach your target return.

添加您的观点

4 Adjust your costs, prices, or sales strategy

The final step is to adjust your costs, prices, or sales strategy, if necessary, to improve your project's performance and lower your break-even point. You can try to reduce your fixed costs by negotiating with suppliers, outsourcing, or downsizing. You can also try to reduce your variable costs by improving your efficiency, quality, or inventory management. Alternatively, you can try to increase your revenue per unit by raising your prices, adding value, or differentiating your product. Or, you can try to increase your sales volume by expanding your market, promoting your product, or offering discounts or incentives.

By monitoring and adjusting your break-even point as the project progresses, you can keep your project on track and optimize your capital budgeting decisions.

添加您的观点

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Meng Hock Tan ????

External Audit | Financial Reporting | Know Your Client Compliance | Big Four | Associate Member of the Institute of Singapore Chartered Accountants (ISCA)
举报内容
There is always uncertainty that the financial manager or accountant will encounter, due to the fact that each input to the breakeven analysis can take on different values. To resolve this issue, a sensitivity analysis or monte carlo simulation can be used. Monte carlo simulation is one kind of method that uses resampling to produce a distribution of possible outcomes. As for sensitivity analysis, I have already covered in other articles within the Capital Budgeting topic. Do keep a lookout to have a read up on it.

已翻译

赞

Capital Budgeting

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How do you monitor and adjust the break-even point as the project progresses?

1

2

3

4

5

1 Track actual costs and revenues

2 Calculate the current break-even point

3 Compare the current break-even point with the projected one

4 Adjust your costs, prices, or sales strategy

5 Here’s what else to consider

Capital Budgeting

给文章评分

感谢您的反馈

更多Capital Budgeting相关文章

更多相关阅读内容