Chapter Overview

The breakeven point for a variable X for one project is expressed in terms such as units per year or hours per month. At the breakeven amount Q_BE , there is indifference to accept or reject the project. Use the following decision guideline:

Single Project (Refer to Figure 13–2.)

Estimated quantity is larger than Q_BE → accept project

Estimated quantity is smaller than Q_BE → reject project

For two or more alternatives, determine the breakeven value of the common variable X. Use the following guideline to select an alternative:

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::Figure 13-2::/sites/dl/free/0072432349/22719/bla32349_1302.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">Figure 13-2 (13.0K)</a>Figure 13-2

Estimated level of X is below breakeven → select alternative with the higher variable cost (larger slope)

Estimated level of X is above breakeven → select alternative with the lower variable cost (smaller slope)

Breakeven analysis between two alternatives is accomplished by equating the PW or AW relations and solving for the parameter in question. The SOLVER tool is very effective in performing fast, accurate breakeven analyses on a computer.

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::Figure 13-7::/sites/dl/free/0072432349/22719/bla32349_1307.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">Figure 13-7 (5.0K)</a>Figure 13-7