Question

What's the real risk to the firm if the marketing team does not know the breakeven price and volume for their products?

Answer 1

Break even Price is the price where the company neither gains any profit nor suffers any loss .

Break even volume is the quantity sold by a company when Total revenue becomes equal to the Total cost . Again break even volume is quality sold by a company where it doesn’t have any profit also doesn’t suffer any loss .

From the chart shown below it is clear that profit starts when the volume  exceeds the break even point and below break even point the company suffers a loss.

Therefore if marketing team of a company doesn’t know about the break even price and volume there are following risks.

(1)They can sell the product at a price lower than the BEP and the company will suffer loss.

(2)They can not predict actual sales target to make the company profitable.

(3)There will be always an error in calculating profit margins.