Answer:
- No, I do not agree, with the statement. See below the explanation.
Step-by-step explanation:
Cost Volume Profit analysis (CVP) is the analysis of the relation of the number of units produced and sold, the price, the costs, the revenues, and the profit.
Naming x the number of units, u the unit cost of producing, F the fixed cost, C(x) the total cost, R(x) the revenue, p the price, and P(x) the profit, you can write these functions:
- C(x) = F + u.x
- R(x) = p.x
- P(x) = R(x) - C(x)
- P(x) = p.x - (F + u.x)
The final equation, P(x) = p.x - (F + u.x) shows the realation of the profits with number of units, the unit price, the fixed costs, and the unit cost.
Then, through a CVP analysis, the firm will be able to figure out how the different factors influence their profit and plan adequately.
Breakeven analysis is a particular case of CVP where the attention is focused in the point when P(x) = 0, to determine the number of units that must be produced in order for the firm start having economical benefits.
Regarding the question about the statement "Breakeven analysis isn't very useful to a company because companies need to do more than break even to survive in the long run", I cannot agree because, learning how many units needed to be produced to start having profits, can lead to important decisions:
- is it possible to reach that number of units with the current technology?
- is it possible to have the market sharing to sell the number of units?
- how many years will it take to reach the required level of production?
- is it worthy continuing producing or should the firm swift to other product?
I mean the breakeven point helps to focus the attention in some market or financial aspects to make a strategy.