Concept explainers
To explain: How do break-even analysis aid managers to measure the potential impact of prices.
Introduction:
Break-even analysis:
A break-even analysis will aid a firm to calculate the sales volume at which the variable and fixed costs needed to develop a product are recovered. It is the point at which a product starts to generate profits.
Explanation of Solution
Ways how do break-even analysis aid managers to measure the potential impact of prices:
Break-even analysis and the concept of cost-oriented ricing are clubbed together to analyze the impact of the pricing objectives and the cost before deciding on the final price of a product. These tools will aid the managers in identifying the prices that will enable the firm to achieve their objectives. Break-even analysis primarily helps to quantify the sales volume at which the firm will cover the production costs and begin generating profits.
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