Essay Btec Business, L3, Unit 7, D1

1243 Words Jan 31st, 2016 5 Pages
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
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Other costs such as technology or expansion are not essential but it can boost the income of the business. Finally, the business will have to spend some money to be up to date with the fashion to keep their income high. This will all effect on the break-even analysis. This is because cost and income are one of the main parts of break-even analysis. Without analysing them, break-even analysis is impossible.
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

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