To What Extent Would Break Even Analysis Be Useful

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To what extent would break even analysis be useful for Organic hampers? 12 marks The breakeven point for organic hampers is the amount of hampers the company needs to make at which its costs and revenue are equal. This means the company has gone from making a loss to breaking even. For a company like Organic Hampers break even analysis can be very useful. This is because they can find out exactly how many hampers are needed to be sold to make the business economically viable. There is no point in them continuing if the breakeven point is unrealistically high as they will never be able to reach it and inevitably make a loss. When Amelia and Julia estimated there sales at 400 hampers a year this left them with a margin of safety, the predicted sales takeaway the break even sales, at 200 hampers. For a small company having a margin of safety at 50% of their predicted sales is very positive as even if they only sell half of what is expected then they are still not going to make a loss. Breakeven analysis is very useful as well as it is easy to change the graph in accordance to different factors. For example as Organic hampers is set at £40 less than their closest rivals it can easily see how many it would have to sell to break even if they were to raise the price. Although this may reduce their competitiveness, they would only have to sell 100 hampers at £100 each. This means the breakeven point has half. With this knowledge Organic hampers would be able to choose a competitive and realistic pricing strategy based on the ability to break even. They are also very good at seeing how tweaking costs will affect the break-even point. For example Organic hampers could see what effect buying a cheaper web designer may have on the breakeven point. This flexibility makes breakeven analysis key for Organic hampers For a company just starting up like Organic

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