MODULE 4: OPERATIONS MANAGEMENT

4.1 METHODS OF PRODUCTION IN DESCION MAKING

4.1.1 EXPLAIN THE IMPORTANCE OF MEETING CUSTOMER NEEDS
 Enhances customer Satisfaction which leads to repeat purchases.
 Build customer loyalty which can lead to long-term relationships.
 Makes the business to stand out/serve as a key differentiator giving the
business a competitive advantage.
 Help guide product development, ensuring that products offered are relevant
and desirable, which can lead to increased sales
 Positive brand reputation as satisfied customers are more likely to share their
positive experiences which can help attract more potential customers.
4.1.2 DIFFERENTIATE BETWEEN PRODUCT LED AND MARKET LED TYPES OF
BUSINESS
Product-Led Businesses Market-Led Businesses
Are businesses that develop a product Are businesses that conduct market
first and then try to sell it to the research to see what consumers
customer/find a market for it through want and then produce goods and
intensive advertising. services to satisfy them.

Little or no market research is carried out

before production begins, instead time
and money is spent on researching and
developing the product.

Focus is on the product-its quality and Focus on the customer

price
Decisions are heavily influenced by Decisions are heavily influenced by
product development and innovation market research, customer
feedback, and competitive analysis.
Emphasis on providing an exceptional Strong emphasis on branding,
user experience and value through marketing campaigns, and
product features. customer outreach.

4.1.3 DISCUSS THE VARIOUS METHODS OF PRODUCTION

1.Job production
2. Batch production
3. Mass/flow production
4. Project production

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1.JOB PRODUCTION
It is a method of production where individual or custom products are made to meet
specific customer requirements. Each product is unique and produced in small
quantities.
Eg: wedding cakes, made-to-measure suits, films
ADVANTAGES OF JOB PRODUCTION
 Products can be tailored to meet specific customer needs or preferences,
enhancing customer satisfaction.
 High Quality products produced since products are often made by skilled or
specialized workers.
 It is flexible as changes can be made easily at different stages of production to
accommodate new requirements.
 Workers face diverse/variety of tasks, which can make jobs more interesting
and reduce monotony, potentially leading to higher job satisfaction.
 Low Inventory Costs as it involves creating products only as orders come in,
reducing the need for large inventories and minimizing storage costs.
DISADVANTAGES OF JOB PRODUCTION
 The cost per unit is generally higher due to the need for skilled workers, and
custom materials so this can limit competitiveness in price-sensitive markets.
 Time-Consuming as each product is made specifically to customers order, so
production times can be lengthy, leading to longer lead times for customers.
 Requires skilled workers, and the reliance on their expertise can make it
difficult to maintain consistent output if skilled labor is scarce or expensive.
 Requires effective planning and coordination as managing production
schedules for multiple custom orders can be complex.

2. BATCH PRODUCTION
It is a method of production in which identical/similar products are produced in blocks or
groups. This method allows manufacturers to produce a moderate volume of products
with some degree of customization.
Eg: bakery, building houses of the same design, textiles

ADVANTAGES OF BATCH PRODUCTION

 It is flexible as it allows for changes between batches, enabling manufacturers
to produce different products to respond to variations in demand.
 Reduced Setup Costs since batches can produce multiple units at once, the
setup and changeover costs associated with starting a batch can be spread
across multiple items, decreasing the overall cost per unit.

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  Maintained Quality Control as consistent production practices and quality
checks can be implemented during batch runs, which helps maintain product
quality within each batch.
 Reduced Wastage: Since products are made in batches, businesses can adjust
production quantities based on forecasts and actual sales, minimizing waste.

DISADVANTAGES OF BATCH PRODUCTION

 Setup Time and Costs: changing between different batches requires setup time
and costs for machinery, which can lead to downtime and decreased efficiency,
particularly when switching between products.
 Inconsistent Product Quality: Variability can occur between batches due to
differences in production conditions, materials, or workforce, potentially leading
to quality control issues.
 Inventory Management Challenges: Maintaining the correct inventory levels for
different batches can be complex, overproduction can lead to excess inventory,
while underproduction may result in stockouts.
 Variable Demand Risk: Manufacturers may produce batches based on
forecasts, and fluctuations in demand can lead to overproduction or
underproduction, impacting profitability.

3.MASS PRODUCTION
It is a production method that involves producing large quantities of
standardized/identical products in a continuous process, using assembly lines and
automated machinery.
Eg: soft drinks factory
Automotive industry

ADVANTAGES OF MASS PRODUCTION

 Economies of Scale: allows for a reduction in the cost per unit due to bulk
purchasing of materials and efficient production processes, this leads to lower
prices for consumers and increased profit margins for businesses.
 High Efficiency and Speed: Automated processes and assembly lines enable
products to be produced quickly and efficiently, as a result, companies can meet
high demand levels and fulfill orders promptly.
 Consistent Quality: due to standardization in processes and use of automated
machinery which results in fewer human errors, help to maintain a consistent
level of quality across all products.
 Reduced Labor Costs due to use of automated machinery which often require
less skilled labor.

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  Mass production of goods making it ideal for meeting high consumer demand.

DISADVANTAGES OF MASS PRODUCTION

 Inflexibility: Once a production line is established, it is challenging to change
products or make adjustments without incurring significant costs, this can be
costly if market demand shifts or customer preferences change.
 High Initial Investment costs as it requires capital investment in machinery,
technology and infrastructure, which may not be feasible for smaller businesses.
 Limited Customization: Mass-produced products generally lack the
personalization or customization that some customers may desire, which can
limit appeal in niche markets.
 High inventory levels to sustain mass production can increase storage costs
and the risk of unsold stock if demand decreases.
 Worker Dissatisfaction due to repetitive nature of assembly line work leading to
higher turnover rates, and issues related to motivation and engagement.

4.PROJECT PRODUCTION
Project production is a manufacturing and management approach that involves
producing unique, complex, and one-off products or projects, often used in industries
such as construction, shipbuilding, and film production, where the final output is
specifically tailored to client requirements and specifications.
ADVANTAGES OF PROJECT PRODUCTION
 Allows Customization therefore enabling the creation of tailored products that
meet specific client needs and requirements.
 Often involve high-value contracts, which can lead to significant financial
gains for the business if successfully completed.
 Involve teams of specialists from various disciplines, fostering collaboration
and knowledge sharing that can enhance the final product.
 Resources (labor, materials, and equipment) can be allocated specifically
based on the project’s requirements, allowing for better responsiveness to
changes throughout the project lifecycle.
 Often involves close communication with clients, which can strengthen
relationships and improve customer satisfaction through tailored solutions.
DISADVANTAGES OF PROJECT PRODUCTION
 The management of projects can be highly complex, requiring detailed
planning, coordination, and logistics that can be challenging to execute
effectively.

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  Projects may experience unforeseen challenges and changes in scope,
which can lead to budget overruns and extended timelines.
 They often take longer to complete due to the unique nature of projects and
the need for extensive planning, compared to mass or batch production methods.
 Limited Repeatability: The unique nature of each project means that lessons
learned from one project may not be easily applicable to future projects, affecting
continuous improvement efforts.
4.1.4 DETRERMINE THE CHOICE OF A METHOD OF PRODUCTION FOR A
PARTICULAR PRODUCT

 The nature of the product: Whether it is a personal, customized-to-order

product, in which case job production will be used. If it is a standard product, then
flow production will be used.
 The size of the market: For a large market, flow production will be required.
Small local and niche markets may make use of batch and flow production.
Goods that are highly demanded but not in very large quantities, batch
production is most suitable.
 The nature of demand: If demand is consistently high and stable, mass
production may be the best choice due to economies of scale. For less frequent
demand, batch and job will be appropriate.
 The size of the business: Small firms with little capital access will not produce
using large automated production lines, but will use batch and job production.
 Customization Needs: If the market requires tailor-made solutions, job
production is ideal as it allows for high customization. If customers prefer uniform
products without specific customizations, mass production or batch production is
more appropriate.

4.1.5 .DISCUSS THE IMPACT OF TECHNOLOGY IN PRODUCTION

POSITIVE IMPACT
 Greater job satisfaction among workers as boring, routine jobs are done by
machines
 Increased Efficiency and Productivity due to use of automated machinery and
robotics.
 Improved Quality products as technological advancements allow for precise and
accurate manufacturing processes, reducing variability and defects.
 Reduced production costs: helps optimize the use of materials, energy, and
labor, leading to reduced production costs.
 Enhanced Flexibility and Customization: Technology enables the production of
varied products on the same equipment, allowing manufacturers to adapt swiftly
to changing customer demands and preferences.
 facilitates greater collaboration and information sharing in R&D, leading to more
innovative processes and products.

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NEGATIVE IMPACT
 There is need for workforce training and upskilling so as to adapt to new tools
and processes, this can be costly to the business /which can change job roles
and requirements.
 Expensive to set up due to the need to buy the automated machinery, software.
 New technology quickly becomes outdated and frequent updating of systems will
be needed- this is expensive and time-consuming.
 Job Displacement due to automation/use of machines and computers
 Employees may take time to adjust to new technology or even resist it as their
work practices change.

4.2 PRODUCTION STRATEGIES IN DECISION MAKING

Production strategies are strategies that dictate how resources are utilized in the
production of goods and services, influencing various aspects of operations, including
cost management, efficiency, and overall competitiveness.
1. Just-in-Time (JIT)
2. Total Quality Management [TQM]
4.2.2 EXPLAIN QUALITY CONTROL, QUALITY ASSURANCE AND TOTAL
QUALITY MANAGEMENT

Quality in production means to produce a good or service which meets customer

expectations, the products should be free of faults or defects.

There are three methods a business can implement to achieve quality.

a.QUALITY CONTROL
It is the checking for quality at the end of the production process for a good or a
service.

b. QUALITY ASSURANCE: It is the checking for quality throughout the production

process of a good or service so as to Eliminates the fault or defect before the customer
receives it.

c. TOTAL QUALITY MANAGEMENT (TQM): It is the continuous improvement of

products and production processes by focusing on quality at each stage of production.
 Workers at one stage have to ensure the quality standards are met for the
product in production at their stage before they are passed onto the next stage
and so on. Thus, quality is maintained throughout production and products are
error-free.

4.2.3 DETERMINE COSTS OF QUALITY IN A GIVEN SITUATION

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1. COSTS OF GOOD QUALITY
These are costs associated with efforts to ensure that products and services meet
quality standards. Investing in good quality contributes to preventing defects and
customer dissatisfaction.
a. Prevention Costs: Costs incurred to prevent defects from occurring in the first place.
Examples:
 Training employees on quality standards and processes.
 Developing quality improvement plans or strategies.
 Conducting process control and improvements (e.g., implementing Lean.
 Investing in quality management systems (e.g., ISO certifications).
b. Appraisal Costs: Costs associated with measuring and monitoring activities to
ensure quality standards are met.
Examples:
 Conducting inspections, testing, and audits of products and processes.
 Calibration of measuring and testing equipment.
 Quality assessments and evaluation of suppliers.
2. COSTS OF POOR QUALITY (COST OF QUALITY FAILURE)
Costs that arise when products or services do not meet quality standards, leading to
defects and customer dissatisfaction.
a. Internal Failure Costs: Costs incurred when defects are found before the product or
service reaches the customer.
Examples:
 Scrap and rework costs for defective products that need to be repaired or
discarded.
 Downtime caused by quality issues during production.
 Costs associated with quality control activities aimed at detecting flaws (e.g.,
inspections that miss defects).
b. External Failure Costs: Costs incurred when defects are found after the product or
service has been delivered to the customer.
Examples:
 Warranty claims and repairs for defective products.
 Returns and replacements of unsatisfactory products.
 Customer complaints handling and support costs.
 Loss of customer goodwill and potential loss of future sales due to a damaged
reputation.

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4.2.4 SUGGEST WAYS OF REDUCING COSTS OF QUALITY IN A GIVEN BUSINESS
SITUATION
 Implement regular training programs focused on quality awareness, best
practices, and process improvement. Well-trained employees can prevent
defects, increasing overall efficiency and reducing internal failure costs.
 Utilize Quality Management Systems like ISO 9001 or Total Quality
Management (TQM) frameworks to helped in identifying inefficiencies, reducing
errors, and improving compliance with quality standards.
 Collaborate closely with suppliers to ensure they meet quality standards and
expectations by supplying high-quality materials which lead to fewer defects in
finished products, reducing both inspection and failure costs.
 Increase Use of Automation and Technology (e.g., robotics, advanced
software) for repetitive tasks in production or quality inspection this help minimize
human error and can significantly reduce internal failure costs.
 Conduct Regular Audits and Assessments to evaluate compliance with quality
standards and procedures as regular evaluations can help identify problems
early, minimizing both internal and external failure costs.
4.2.5 DISCUSS JUST IN TIME [JIT] PRODUCTION
JUST IN TIME [JIT] A production strategy that focuses on minimizing inventory held
and reducing waste by producing goods only when needed and ordering raw materials
only when needed in the production process.
ADVANTAGES
 Reduced storage costs as raw materials are received only when needed in
production/goods are produced only when they are needed, this minimizes the
amount of inventory held.
 Increased Efficiency: streamlining production processes leads to faster
production cycles/reduced lead times which improves responsiveness to
customer needs.
 Improved quality of goods as it focuses on quality control throughout the
production process, this lead to fewer defects and a better final product/ lead to
customer satisfaction.
 Greater Flexibility: it allows the company to adapt quickly to changes in
customer demand, enabling it to produce only what is needed based on real-time
customer orders.
 Less wastage as it prevents overstocking of raw materials/over production of
goods, reducing the risk of stock piled in a warehouse.
DISADVANTAGES

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  Requires reliable suppliers who can deliver raw materials on time as
disruptions in the supply chain can halt production leading to revenue losses.
 High Initial Setup Costs as it requires investment in training, process changes,
and technology, which can be costly and time-consuming.
 Limited Buffer Stock: Minimal inventory levels may limit the ability to absorb
fluctuations in demand or production issues, leading to customer dissatisfaction.

4.2.6 EXPLAIN THE IMPORTANCE OF RESEARCH AND DEVELOPMENT [R&D] IN

PRODUCTION DECISIONS
RESEARCH AND DEVELOPMENT (R&D): a systematic approach to investigating new
ideas, processes, and technologies in order to innovate and improve products and
services.
 Innovation and Product Development; It helps organizations create innovative
solutions that can meet changing customer needs and preferences.
 lead to competitive advantages as Companies can differentiate their products
in the marketplace through their Innovative products that can capture new
markets and enhance customer loyalty.
 Quality Improvement: R&D contributes to developing higher-quality products
through improved materials, processes, and production techniques which lead to
reduced defect rates, higher customer satisfaction, and lower costs associated
with returns and repairs.
 Cost Reduction: organizations can identify more efficient production methods,
new technologies, or alternative materials that reduce production costs leading to
improved profitability.
 Risk Mitigation: helps organizations identify potential risks involved in new
product development and production processes, such as technical feasibility,
market acceptance, and regulatory compliance, this can prevent costly failures
and reduce the likelihood of negative consequences.
 Improvement of Production Techniques and Technologies which can
increase efficiency, lower production time, and reduce waste.
4.2.7 IDENTIFY RESEARCH INSTITUTIONS IN BOTSWANA
 National Food Technology Research Centre [NFTRC]
 Botswana Institute for Technology Research and Innovation [BITRI]
 Teritiary institutions – University of Botswana
-BIUST

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 4.3.1 EXPLAIN THE IMPORTANCE OF THE FIVE P’s OF PRODUCTION
5P’S OF PRODUCTION
 PRODUCT
 PROCESS
 PLANT
 PEOPLE
 PROGRAMME

1. PRODUCT: This refers to the good or service that a business offers.

Understanding the product involves recognizing its features, quality, design, and the
needs it fulfills for the consumer. Companies must analyze product specifications and
ensure that it aligns with customer demands and market trends
Importance
 Understanding the product being manufactured is essential to ensure that it
meets customer needs and expectations
 A focus on the product allows companies to differentiate themselves in the
marketplace, ensuring that the product aligns with market trends and consumer
preferences.
 Selecting the appropriate materials and methods for product design can
influence production costs, efficiency, and profit margins.
2.PROCESS: This encompasses the methods and procedures used to produce the
goods or deliver services.
It involves planning the workflow, technology utilized, and the different stages of
production, including raw material acquisition, manufacturing, assembly, and
quality control.
Importance
 A well-defined production process helps minimize waste, optimizes resource
utilization as simplified processes lead to faster production cycles.
 Establishing standardized processes ensures product consistency and quality,
reducing variations and defects in finished goods.
 Understanding the production process allows organizations to adapt to changing
demands or market conditions, such as introducing new products or adjusting
production volumes.
3. PEOPLE: This factor focuses on the human resources involved in the production
process.

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It includes employees, management, and even customers in the context of co-creation.
Skills, training, motivation, and teamwork are vital components, as they influence
productivity, efficiency, and the overall work environment.

Importance
 Skilled and motivated employees are important to the production process, proper
training and development programs should be employed to empower workers to
perform tasks efficiently and effectively.
 Strong leadership inspires a culture of quality and continuous improvement,
encouraging employees to take ownership of their work and contribute to
production goals.
4.PLANT: refers specifically to the physical facilities, buildings, and infrastructure where
production activities take place.
It includes where the production occurs (e.g., factories, workshops) and how the product
reaches consumers (e.g., distribution channels, retail locations).
Importance
 Location: The geographical site of the plant is vital for minimizing transportation
costs, facilitating access to raw materials, labor, and markets, so locating closer
to suppliers and customers can enhance efficiency.
 Layout and design: The arrangement of machinery, workstations, and storage
areas within the plant should be designed in such a way that it minimizes
unnecessary movement and ensures that the production process is smooth and
efficient.
 Facilities and equipment: The plant must have adequate facilities to
accommodate production activities and the machinery and tools used in
production should be appropriate for the product being manufactured. This
includes production lines, assembly areas, quality control zones, and storage
spaces.
 A safe and well-maintained plant is essential for minimizing accidents and
downtime. Proper maintenance ensures equipment reliability, reducing
disruptions in production.
5. PROGRAMME: this includes the scheduling and timing of production activities.
It involves creating a timeline for when different production tasks will occur, aligning
resources, and ensuring that everything runs smoothly
Importance:

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  production control ensures that the right products are produced at the right time
and in the right quantities.
 Quality Management: Monitoring quality throughout the production process
allows for immediate corrective actions when defects are detected. This
minimizes waste and costs associated with poor quality.
 Production control involves evaluating key performance indicators (KPIs) to
assess efficiency, productivity, and profitability. Continuous monitoring helps
organizations identify areas for improvement and optimize operations.

COSTS OF PRODUCTION AND BREAK-EVEN ANALYSIS

4.3.2 EXPLAIN THE VARIUOS TYPES OF COSTS

1. FIXED COSTS (FC) are costs that do not change as the level of output changes,
they remain constant and are to be paid whether there is production or not.
Example
 rent
 management salaries,
 insurance premium

Total Fixed Costs [TFC]= sum of all fixed costs

2. VARIABLE COSTS (VC) are costs that vary directly with output, they increase as
output increases & decreases when output decreases. They are zero when output
is zero.
Example
 raw material costs
 wages of workers directly involved in production


Total Variable Costs [TVC]= Variable Costs [VC] x Total Output

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 3. AVERAGE VARIABLE COSTS: it is the variable cost per unit of good or service
and directly varies with the output, it declines as output increases, reaching a
minimum point, after the minimum point, it rises as production increases.

Average variable Costs = Total Variable Costs [TVC]

Total Output

4. TOTAL COSTS (TC) are the sum of total fixed costs and total variable costs

Total Costs [TC] = Total Fixed Costs [TFC] + Total Variable Costs [TVC]
5. AVERAGE COST: it is the cost per unit of output.

Average Cost = Total Costs [TC]

Total Output
OR
Fixed Cost + Variable Cost
Output

6.DIRECT COSTS: are expenses that can be traced to a specific cost object and are
directly related to the product or service produced.

They are incurred as a direct result of producing the product or delivering a service and
can be traced back to a specific product, project, or department.

 Raw materials such as wood and steel

 Wages of factory workers directly involved in production
 Machinery parts used for a specific product

7.INDIRECT COSTS: are expenses that cannot be directly linked to a specific cost
object, though they may be necessary for overall operations.

They’re typically shared across multiple cost objects/departments and include overhead
expenses like

 rent.

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  administrative and management salaries,
 utilities
 Depreciation of company-owned vehicles and office equipment like computers
 Office supplies
 Insurance for company assets and liabilities

4.3.5 EXPLAIN REVENUE IN RELATION TO PRICE, CALCULATE REVENUE AND

CONTRIBUTION

REVENUE: It is the total income a firm earns from the sale of its goods and
services. The more the sales, the more the revenue.

Total Revenue (TR) = No. of units sold X selling Price per unit (SP)

CONTRIBUTION: This is the amount that each unit sold contributes to covering fixed
costs and generating profit. It is important in determining the break-even point (BEP).

Contribution = Selling Price – Variable Cost per unit

4.3.7 EXPLAIN BREAK-EVEN POINT (BEP) AND CALCULATE/DETERMINE IT

THE BREAK-EVEN POINT is the level of sales at which total revenue equals total costs
(fixed and variable), resulting in neither profit nor loss.

Knowing the BEP helps businesses understand how much they need to sell to cover
their costs.

Break Even Point [BEP] = Total Fixed Costs

Contribution

EXAMPLE

ABC company manufactures water bottles. Its total output is 2000 bottles per month

 Selling Price per Unit: P8

 Variable Cost per Unit: P3

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  Total Fixed Costs: P5000

USE THE INFORMATION ABOVE TO CALCULATE THE BREAK -EVEN POINT

[BEP], DRAW THE BREAK-EVEN CHART AND INTEPRETE IT

BEP = TOTAL FIXED COSTS

CONTRIBUTION

= P5 000
P8 - P3

= P5 000
P5
= 1000 units

PRODUCTION COSTS

Output/ Fixed costs Variable Total Costs Revenue

units [FC] cost [VC] [TC] [R]
0 5000 0 5 000 0

500 5000 1 500 6 500 4 000

1000 5000 3 000 8 000 8 000

1500 5000 4 500 9 500 12 000

2000 5000 6 000 11 000 16 000

BREAK EVEN CHART

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INTERPRETATION:
 The production costs for ABC Company is P8 000, so it has to produce 1000
water bottles or has to make a sales revenue of P8000 in order to break-even/
cover the productions costs.
 The company will start making profit from the 1001th water bottle.
 The business needs to make P8000 in sales revenue to start making a profit.

4.3.10 EVALUATE THE USE OF BREAKEVEN ANALYSIS IN PLANNING AND

DECISION MAKING
BREAK-EVEN ANALYSIS: is a financial tool that helps businesses determine the level
of sales at which total revenues equal total costs, resulting in neither profit nor loss.
ADVANTAGES OF BREAK-EVEN ANALYSIS

 Provides a clear way to understand the relationship between costs, revenues,

and profits helping the business to determine the minimum sales needed to avoid
losses.
 The analysis forces organizations to closely examine their fixed and variable
costs, as well as their pricing strategies, understanding these cost structures can

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 lead to more informed decision-making regarding cost management, pricing, and
resource allocation.
 Can be used to forecast financial performance under different sales scenarios,
aiding in strategic planning by allowing businesses to project the effects of
changes in costs, pricing, or sales volume on profitability.
 Investors and lenders often use break-even analysis to evaluate the risk and
return on investment opportunities by assess the financial viability of new
projects or product launches.
LIMITATIONS OF BREAK-EVEN ANALYSIS
 Break-even analysis operates under the assumption that costs are either fixed or
variable, leading to potential inaccuracies. In practice, costs may change with
production levels.
 The analysis provides a snapshot based on specific data at a certain time without
accounting for dynamic market conditions or changes in consumer behavior. this
can limit the utility of break-even analysis in rapidly changing environments
where costs, prices, and demand fluctuate frequently.
 Break-even analysis typically does not consider external factors such as
competition, market demand fluctuations or economic conditions.

THE END

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