1.) Break-even analysis is an important tool, which helps to define the level of sales needed for the company to break even. The basic formula for calculating the break-even point is (fixed costs)/(selling price – variable cost per unit), however in some instances this formula is further adjusted for noncash items, in order to evaluate the break even position from the cash flow prospective only. The independent variables in this calculation are selling price as well as fixed and variable costs, while the dependent variable is the level of sales, needed to break even. This relatively easy formula provides managers with a powerful tool, which helps to evaluate business feasibility of a particular undertaking, by comparing the break-even point with the projected sales. Therefore, it serves as a benchmark, which signals the sales level that is just enough to cover business expenses, thus it is just enough to keep business functional. Moreover, it acts as a primary indicator for many operating decisions, including calculation of excess capacity, the possibility to increase fixed costs and the profit margins, which can be derived from the business. Although break-even analysis is not sufficient to evaluate completely the viability of a project or a product, it is nevertheless very helpful to give managers a rough idea of the potential outcome of their decision and to estimate the necessary demand that a certain product or service should generate in order to cover its costs. If the break-even sales seem attainable more in-depth analysis can be conducted.
2.) Numerical approach to decision-making is essential for making appropriate business decisions and carefully monitor company’s current position. Although common sense and qualitative information can provide some input for evaluating the situation in a company, only quantitative data may give managers an opportunity to identify the current position of the business with a certain level of precision. Moreover, numerical data can support business decision, derived from more qualitative information, and provide and quick method to track the impact of certain policies on company’s performance. Therefore, an MBA degree should incorporate mathematical knowledge into its curriculum, in order to provide graduates with the necessary quantitative tools, which are essential for evaluating business opportunities, making good decisions, and continuously collecting feedback about business performance. Without this knowledge an MBA degree can only give a generic understanding of managerial practices and company operations in the market environment, without giving the tools for their implementation.
3.) A variable is an event or a property, which is measurable, and varies throughout the experiment. An independent variable is the variable that is not influenced by the change in other variables, while causing the change. Dependent variables are affected by independent variables and represent the variables of interest in the course of an experiment. The relationship between independent and dependent variables is cause-and-effect relationships, with the dependent variable representing the final effect, while the independent variable serving as the cause of the change. Therefore, by varying independent variables researchers are able to investigate the change in dependent variables, thus exploring the relationship between the variables and the nature of change of the dependent variable. Dedifferentiating between dependent and independent variables is important for business and research, since it helps to identify the factors which can be altered (independent variables) in order to achieve the desired outcome (dependent variable).
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Lipsey, R. G., & Chrystal, K. A. (2007). Economics. (11th ed.). Oxford, UK: Oxford University Press.
Mooney, L. A., Knox, D., & Schacht, C. (2010). Understanding social problems. (7th ed.). Belmont, CA: Wadsworth, Cengage Learning.