ome of the major decisions management must take concern the behavior of sales, costs and profits under varying conditions. For effective planning and control it is important that management should be aware of any relationship which exists between sales, costs and profits for changing levels of activity. Management makes use of the information provided by the accounting system to plan and control future operations. The information, to be meaningful, must be provided and presented in such a way that it will appeal to management. Break even analysis and Cost-Volume- profit-Analysis are some of the ways in which information concerning sales, costs and profits relationship is presented to management in a clear and appealing form Required: a). Discuss how break even analysis can aid management in decision making b). Discuss the practical difficulties associated with the use of breakeven analysis by managers in decision making .
Some of the major decisions management must take concern the behavior of sales, costs and profits under varying conditions. For effective planning and control it is important that management should be aware of any relationship which exists between sales, costs and profits for changing levels of activity. Management makes use of the information provided by the accounting system to plan and control future operations. The information, to be meaningful, must be provided and presented in such a way that it will appeal to management. Break even analysis and Cost-Volume- profit-Analysis are some of the ways in which information concerning sales, costs and profits relationship is presented to management in a clear and appealing form
Required:
a). Discuss how break even analysis can aid management in decision making
b). Discuss the practical difficulties associated with the use of breakeven analysis by managers in decision making .
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