Lady M Break-Even Analysis

Posted: August 25th, 2021

Lady M Break-Even Analysis

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Lady M Break-Even Analysis

Question 1 (a) Break-even Analysis

After conducting the break-even analysis, it is established that the company will have to sell about 2,211,906 units to ensure that fixed costs are covered. The following graph displays a trend of the projected break-even units per year, depending on the dynamics of fixed costs.

Figure 1: Lady M Confections Break-even Analysis

Although the projected break-even units are 2,211,906, it appears that the figure is unattainable over the projected period. The reason is that there are high variations in the costs of goods sold, which renders the total cost incurred in the production process, thus limiting the profit attainable in five years. The situation seems to worsen over the years as the company continues to make losses over time.

Question 1 (b): Projected Sales Growth to Meet Repayment Period of Five Years

The projected sales growth to ensure that the company pays back the start-up cost for the business, the sales revenues requires to grow at the rate of 92.2% for five years to help meet repayment expectations. The growth rate is not feasible, considering the extreme nature of expected growth. Further, the company will be expected to incur more on other costs of goods sold expenses that would undermine its returns within the period (See Excel, Break-Even analysis). More so, the company had projected to facilitate payback of the capital by ensuring that sales growth is at 20% at its best or 5% at its worst. However, the projected growth cannot help service the debt or payback the start-up costs as it is extremely low. Based on the dynamic nature of fixed costs that change each year, such growth rate will take over ten years to break-even.