Discussions ; Week $4$: Cost Volume Profit $($CVP$)$ Analysis

Sevch tis conary

Great start to the ciscussions. Here is another one for you:

How could managers use the break even point when introducing a new product?

Let us first revisit what the breakeven point is:

This is where we see the moncy invested in the business be equal to what has bem brought in regarding sales volume. Maragers may use the break$-$even poire when introducing a rew product by using the equation method and the formula method to find the break$-$even point in dollar soles.

The equation method:

The formila methoot

$"...$ Frofit $-$ Contribution Margin $/$CMI $\backslash$times Sales $-$ Fiand Costs IFC.

$$0-$ Contribution Margin Ratio $($CM$)$ x Sales $-$ Fised Costs IFC.

CM Ratia $$ Sales $=50+$ Fixed Costs $|FC|$

Sales $=$ Fired Costs ; FG$,/$CM Fatio

These two methods help a manager see how the new product is doing compredi to their projected target for how much they would need to sell to break$-$even. This allows for a smaler magin of emor as well, bocause if the prodact, let's say after is months was not doing well, a manager would be able to present the companies income statementsi balance sherts to the CEO or whocver is up the chain of command and they would be able to docide it the new product is worth contruing to sel, based off the break$-$ever point for the new product introduced or lach themof.