Essay Btec Business, L3, Unit 7, D1
In this assignment, I will evaluate the reliability of break-even analysis in estimating budgeted activity levels for a selected organisation.
Break – Even Analysis
Break even analysis is reliable as it is made from the budget and it gives a financial structure to the business. The data used for break-even, the business try to make the data as accurate as possible. They make this data depending on the previous year’s financial report. That’s why break-even is reliable to estimate current year’s results. In a short run, break-even analysis can be accurate.
There are some limitations of break-even as well. For example, it cannot give accurate results if the data used for it is predicted. Data such as change in direct cost …show more content…
Stock is one of the most risky current assets to hold. Stock can get damaged or go out of fashion quickly. If stock is not sold, the business will lose a lot of money. Also, if the company produces a higher amount of products, they may not have space to place them on the shop floor. So, they are not going to be sold. Also, it is possible for the company to sell more products than they have actually assumed. If this happens, the company will quickly run out of stock meaning that they will not have enough stock to sell to customers. This means that the business can potentially lose out on profit.
To solve these problems the company can ask for a supply in a short amount but continuously. This will prevent holding stock for a long time. Also, the company can open an account to prevent excessive loss. A prudence account is basically assuming higher costs on the products. This is made to assume that some products will be damaged or will not be sold. This will give a more accurate result