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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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20.3 BREAK-EVEN POINT AND PROFIT PLANNING

After BEP is determined, the finance manager plans for profits. This can be done in three ways. They are as follows:

  1. Increasing the sales volume;
  2. Increasing the sales price;
  3. Decreasing the cost, both fixed and variable.

20.3.1 Increase in Sales Volume

Since the volume of sales over and above the BEP allows a firm to reap profits, the firm, in normal course, plans to achieve a level of output and sales at a point beyond the BEP. It depends upon a couple of factors. One is the amount of profits the firm would like to earn; and the other is a certain margin of safety that the firm likes to maintain in view of the fact that a reduced level of activity as a result of reduction in demand may not put the firm ...

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