Breakeven Analysis

The table below shows a breakeven analysis of the assumptions and forecasts underlying the Beta Project at ABC Corporation

Variable (forecast or assumption ) Expected Value Critical Value Change

Sales growth rate

7 6 14 .3

Gross profit margin 42 28 33 .3 Operating expenses 15 8 46 .7 Net working capital /sales 20 17 15

Base year sales for 2008 780 ,000 450 ,000 42 .3 a . Explain , in your own words , what breakeven analysis of the assumptions and forecasts is telling you (5 points

The above breakeven analysis

of each variable displays the combination of the variables that result in a break-even position for the Beta project at ABC Corporation . For example , the 6 sales growth rate would result in a break-even for the project if the operating expenses grow at 8 . Other ratios are derived from sales and operating expenses so that their growth rates are also reflective of the critical ' rates - below these rates , the break-even would be violated

The forecasts of the variables depict the estimates made by ABC Corporation for each of the variables in the context of market information and judgment . In this case , all of the values are above the critical value thus it has to be re-calculated whether the combination results in a break-even or not . For example , the operating expenses growth rate increased by 46 .7 while sales growth rate was up by only 14 .3 . The balancing factors have to re-evaluated in to deduce whether the break-even is achieved...