Monday, April 20, 2009

Break-Even Analysis

Break-even is the point where the cost of the candidate system and that of the current one are equal. Unlike the payback method that compares costs and benefits of the candidate system, break­ compares the costs of the current and candidate systems. When a "date system is developed, initial costs usually exceed those of the current system. This is an investment period. When both costs are equal, it is break even. Beyond that point, the candidate system provides greater (profit) than the old one-a return period.

 The attributes are processing cost and processing volume. Straight lines are used to show the model's relationships in terms the variable, fixed, and total costs of the two processing methods and economic benefits. Intersection B' indicates the point where the total of processing 65,000 transactions by the current system is equal to the to cost of using the candidate system. The shaded area beyond that point the return period. The shaded area AB'A' is the investment period. According to the chart, then, it would be more economical to process manually when volume is below 65,000 transactions during a given time period. Processing volume above B' favors the oandidate system.

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