Introducing Learning by Doing into the Break-Even Analysis Model

Abstract

Break-even analysis is widely used in helping managers anticipate how output changes affect profitability. Warnings abound, however, in relying too heavily upon implications drawn because strong assumptions in the model may limit applicability. This paper focuses on relaxing the assumption that variable cost per unit is constant, inconsistent with ergonomic emphasis on learning.

The analysis below indicates the effect of learning on output needed to: (1) break-even, (2) achieve a target profit, and (3) choose the make rather than buy decision. Including learning does complicate the analysis, but as shown, it need not be much more difficult to use.