Operations management

Table of Contents

1. Topic pack - Operations management - introduction
2. Operations Management (OM) - Introduction
3. 5.1 Production methods notes
4. 5.1 Production methods - questions
5. 5.2 Costs and revenues - notes
6. 5.2 Costs and revenues - questions
7. 5.3 Break-even analysis - notes
   1. Break-even analysis
   2. Amazon.com
   3. Break-even analysis - calculation
   4. Building a break-even chart
   5. Drawing a break-even diagram
   6. Completing a break-even chart
   7. Margin of safety
   8. Margin of safety - example
   9. Break-Even: Worked example
   10. Changes in break even
   11. Target Profit and Revenue
   12. Examples - break-even analysis (1)
   13. Examples - break-even analysis (2)
   14. Limitations of break-even analysis
8. 5.3 Break-even analysis - questions
9. 5.3 Break-even analysis - simulations and activities
10. 5.4 Quality assurance - notes
11. 5.4 Quality assurance - questions and activities
12. 5.5 Location - notes
13. Innovation - notes (HL only)
14. 5.6 Innovation - questions
15. 5.7 Production planning - notes
16. 5.7 Production planning - questions
17. 5.8 Project management - notes (HL only)
18. 5.8 Project management - questions (HL only)
19. Print View

Break-even analysis

A firm records its costs and revenue, because these figures allow it to calculate the level of profit or loss on its operations. However, almost as important as knowing the level of profit, is knowledge of the level of output required to make that profit. This knowledge will allow a firm to plan its production levels, and as a consequence will have knock on implications for marketing, HRM and finance departments.

The point at which a business generates enough revenue to cover all of its costs without any surplus is known as the break-even point or break-even quantity. The firm knows that any units produced, and sold, beyond that point will represent a profit for the business. New firms and new products are unlikely to be profitable immediately as set-up costs tend to be high and revenues relatively low as the product is not well-known in the market place. In the early days after set-up, a new firm is likely to be making a loss. However, the business plan should identify a time at which it expects its revenues to match its revenues and it will break even.