IBDP Business Management Account And Finance Chapter 2 Notes

break even analysis

STUDY NOTES FOR BUSINESS MANAGEMENT – OPERATION MANAGEMENT CHAPTER 3 – BREAK EVEN ANALYSIS

These notes have specially been curated by expert teachers to simplify and enlighten concepts given in IB Business Management HL. The notes are comprehensive in nature and are sufficient to study the chapter in depth, One need not look for other resources beyond the notes provided on our website which can be accessed for free.

Business management IBDP is a part of group 3 Individuals and the Society of the IB curriculum. The IBDP Business Management course has been devised for imparting knowledge and understanding of different theories of Business Management and application of various tools and methods. It enables the students to analyze and evaluate business activities at all levels- local, national, or international, It also helps in developing holistic understanding of the business environment today which is complex and fast changing.

The subject covers important characteristic of business organization and business functions of human resource management, finance and accounting, marketing, and operations management. The purpose of the course is to help students develop skills that enable them to think critically and make the right decisions after carefully evaluating and analyzing the issue at hand. It also aims at developing the understanding of the importance of innovation and exploring business from different cultural perspectives.

Break- even analysis is an important topic and is explained with the help of a hypothetical example covering important definitions. For example contribution is the amount of money remaining after deduction of the total variable costs of the production from the revenue generated by sale. This simple formula is used to calculate total profit. Next, we have the importance of contribution analysis. The chapter further talks about break-even analysis which is a management tool for decision making based on expected sales, break-even point is when the costs are equal to the revenue and hence there is no profit or loss.

The chapter explains the three methods for calculating break-even point and break-even quantity- TR=TC Rule, Contribution per unit rule, and break-even chart or the graphical method. Further ahead, the chapter explains the method for calculation of the margin of safety which is the difference between sales volume of the firm and the break-even quantity. The advantages and limitations of break-even analysis are discussed in detail followed by unrealistic assumptions of the break-even analysis.