PART A

ANSWER 1

1. Make sure you are suited to being an entrepreneur It takes time, commitment, a good idea, the right personality, and business skills to start and run a small business successfully. The following websites will help evaluate your suitability and the viability of your new business venture. o Government of Canada Starting a Business o Small Business BC o Canada One Starting a Business o Guide for Canadian Small Businesses 2. Decide on a business structure Most small businesses are operated as a Sole Proprietorship, General Partnership, or a Corporation (also known as a Limited Company). Some businesses can be structured as Societies and Cooperatives. The following websites offer the pros and cons of these various business structures. If you are not sure which is best for your business, consult a lawyer and an accountant. o BC Corporate Registry o Invest Canada o Small Business BC o Corporations Canada o BC Corporate Societies o Cooperative Associations 3. Develop a business plan A business plan is a written document that details what your business will do and how it will operate. Financial institutions may review your business plan and make lending decisions based on the information you provide. A business plan also helps ensure that you are ready to launch your new business, even if you do not need financing. The following websites will help you develop a business plan. o Small Business BC o Canada One o BDC Consulting - Effective Business Plan 4. Secure financing and business insurance Financing - If you cannot raise enough money to cover your business start-up costs through family, friends, loans or lines of credit, click here for information on small business financing, or visit the following websites for information on Federal and Provincial funding options. o Canada Government Small Business Financing Program o Industry Canada Business Resources o Small Business BC o Community Futures Development Corporation (CFDC) Business Insurance Obtaining business insurance protects you against liability in case of robbery, fire, flood, and any other type of damage. Find an insurance agent that specializes in small business insurance and shop around to find the best rate. 5. Choose a business name and have it registered If you want to use a business name that is anything other than your personal name, you need to have the name approved by, and then registered online with BC Registry Services or OneStop Business Registry. Business names must have both a distinctive and a descriptive element, like "ABC"(distinctive element) "Manufacturing" (descriptive element). A designation such as Ltd. must be added if you are planning to incorporate your business. It is a good idea to have a first, second and third choice for your business name, just in case the name you want is not available. You can do preliminary research for potential conflicts by looking through telephone listings, business directories, or by searching BC Registry Services at Research Name Choices. Once approved, your business name will be reserved for 56 calendar days, during which time you must register your business with BC Registry Services. Protecting your business name The names of sole proprietorships and general partnerships are not protected by law, which means someone else could decide to use the same name. Only incorporated businesses have that protection. If protecting your business name is important to you, you may want to incorporate your business. You will need to apply online using Corporate Online and choose File an Incorporation Application. For information about applying for federal incorporation, visit Corporations Canada 6. Register your business If your business is a sole proprietorship or general partnership, you can register it online at OneStop Business Registry using a Visa, MasterCard or American Express. You can register using cash, debit card or cheque at Service BC Centres and FrontCounter BC offices. Call 1-877-822-6727 to find the location nearest you. To incorporate, you must file an Incorporation Application with BC Registry Services. For information on the application process or to apply online, visitCorporate Onlineand choose File an Incorporation Application 7. e-Business & Internet Marketing If you plan to use the Internet to sell or market your goods or services, you will need to create a website and secure a domain name. You can research availability of domain names and buy the rights to a name online. There are many web design companies to assist in your website development and maintenance. Visite-Business Connection for information on how to develop a web presence and strategy. 8. Register for the HRT Depending on the type of business, you may have to charge and collect the provincial Hotel Room Tax (HRT). That means you will need to register with the Ministry of Finance. Register online at OneStop Business Registryor call Taxpayer Services toll-free at 1-877-388-4440.

9. Register for the HST No matter what business you start, if you sell more than $30,000 a year in goods or services through your business in a calendar quarter or four consecutive quarters, you will have to collect and pay the HST and you will need to register with the Canada Revenue Agency. 10. Complete other registrations, if applicable Workers Compensation Plan - If you plan to hire employees or have incorporated your business, you will need to register with WorkSafeBC and pay insurance premiums that cover you and your employees for work-related injuries and disease. If you are self-employed, you may want to apply for WorkSafeBCs Personal Optional Protection. To register or find out more, visit WorkSafeBC Payroll Information - If you are paying salary, wages, bonuses, vacation pay or tips to your employees or providing a benefit to your employees such as board and lodging, you need to register with the Canada Revenue Agency for a payroll deductions account. This account enables you to make the required Income Tax, Canada Pension Plan (CPP) and Employment Insurance (EI) payments. For more information, visit OneStop Business Registry or Canada Revenue Agency Payroll Information Corporations - If your business is incorporated, or you are a non-resident corporation operating in Canada, you will need to register for a Corporate Income Tax account with the Canada Revenue Agency. Import/Export Goods - If you are going to import or export goods, you will need to register with the Canada Border Services Agency (CBSA). You can register your business with the CBSA through the OneStop Business Registry. For more information visit Import/Export Guide. Restaurant Liquor Licence - If you have a restaurant and the service of food, as opposed to liquor, is the primary focus of your business, you can apply for the Restaurant (Food-Primary) Liquor Licence through the OneStop Business Registry. For more information visit BC Liquor Control and Licensing. BCeID online service - If you need to change your business address through the OneStop Business Address Change Service, or plan to access other government e-services regularly, you will need a business BCeID. A BCeID is an online service that makes it possible for you to use one login ID and password to sign in securely to any BCeID participating provincial government website. You can apply for a business BCeID through the OneStop Business Registry, click on step 3. For a complete list of government e-services that use BCeID, visit the Online Service Directory. Business Licence - Your business may require a local government business licence to operate. Check with your local government or First Nation for licence and zoning requirements in your area. If you need to register for a business licence, you may be able to do so through the OneStop Business Registry. Click here for a list of participating local governments and First Nations.

PART B

ANSWER 1

Human resource management (HRM, or simply HR) is the management of an organization's workforce, or human resources. It is responsible for the attraction, selection, training, assessment, and rewarding of employees, while also overseeing organizationalleadership and culture, and ensuring compliance with employment and labor laws. In circumstances where employees desire and are legally authorized to hold a collective bargaining agreement, HR will also serve as the company's primary liaison with the employees' representatives (usually a labor union). HR is a product of the human relations movement of the early 20th century, when researchers began documenting ways of creating business value through the strategic management of the workforce. The function was initially dominated by transactional work such aspayroll and benefits administration, but due to globalization, company consolidation, technological advancement, and further research, HR now focuses on strategic initiatives like mergers and acquisitions, talent management, succession planning, industrial and labor relations, and diversity and inclusion. In startup companies, HR's duties may be performed by trained professionals. In larger companies, an entire functional group is typically dedicated to the discipline, with staff specializing in various HR tasks and functional leadership engaging in strategic decision making across the business. To train practitioners for the profession, institutions of higher education, professional associations, and companies themselves have created programs of study dedicated explicitly to the duties of the function. Academic and practitioner organizations likewise seek to engage and further the field of HR, as evidenced by several field-specific publications.

Importance of hrm in tourism industry

The importance of tourism and hospitality employment in both developed and developing countries is attested to by the World Travel and Tourism Council (WTTC),who suggest that travel- and tourism-related activities account for over 230 million jobs, or 8.7 per cent of jobs worldwide (WTTC, 2006). However, whilst the quantity of jobs is unquestionable, the quality of many of these jobs is of great concern to academics and policy-makers alike. Despite the rhetoric of policymakers and business leaders that people are the industrys most important asse t, many remain unconvinced that such a view is borne out by empirical evidence. For example, Douglas Coupland, the notable cultural commentator, has for many captured the zeitgeist when he talks pejoratively of McJob which he describes as, A low -pay, low-prestige, low-dignity, low-benefit, no-future job in the service sector. Frequently considered a satisfying career choice by people who have never held one (Coupland, 1993: 5; and see also Lindsay and McQuaid, 2004). MacDonald and Sirianni (1996) recognize the challenges of living and working in a service society which, according to them, is characterized by two kinds of service jobs: large numbers of low-skill, low-pay jobs and a smaller number of high-skill, high-income jobs, with few jobs being in the middle of these two extremes. Such a situation leads labour analysts to ask what kinds of jobs are being produced and who is filling them. This point is also true for

the tourism and hospitality industry and it is important at the outset of this article to add a caveat about the generalizability (or otherwise) of the conditions of tourism and hospitality employment worldwide. Hence Baum (1995: 151) reflecting the diversity of employment within the sector notes that: In some geographical and sub-sector areas, tourism and hospitality provides an attractive, high-status working environment with competitive pay and conditions, which is in high demand in the labour force and benefits from low staff turnover The other side of the coin is one of poor conditions, low pay, high staff turnover, problems in recruiting skills in a number of key areas, a high level of labour drawn from socially disadvantaged groups, poor status and the virtual absence of professionalism. Organizations and managers in the tourism and hospitality industry face real challenges in recruiting, developing and maintaining a committed, competent, wellmanaged and well-motivated workforce which is focused on offering a highquality product to the increasingly demanding and discerning cus tomer. This article seeks to address some of the key human resource (HR) issues that have to be tackled in order that organizations can maintain such an environment. To do so it will critically review some of the problems which lead many to characterize tourism and hospitality employment as generally unrewarding and unappealing, whilst also considering examples of good practice, important policy responses and models of HRM which may offer cause for greater optimism in the way people are managed within the tourism and hospitality industry. ANSWER 3 In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership, acorporation or other business organization, such as an LLC or an LLP. Assets, liabilitiesand ownership equity are listed as of a specific date, such as the end of its financial year. A [1] balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year. A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of [2] assets are usually listed first, and typically in order ofliquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and [3] according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing". A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also haveliabilities. Financial statements such as balance sheets and income statements provide an overview of your businesss financial health. Banks, investors, employees and anyone else interested in a company can review these reports and see how much money is coming into and going out of the business, the types of expenses the business has, and whether or not the business is profitable. If you apply for a business loan or ask others to invest in your company, youll need a balance sheet and income statement to prove youre a good investment risk. Balance sheets and income statem ents can also help you track the success of your business and spot potential problems. Balance Sheets A balance sheet shows your businesss assets, liabilities and shareholder equity at a specific moment. An asset is anything that has value, such as equipment, real estate or cash in your bank account. Liabilities are money you owe others, such as a mortgage on property and the balance of loans and debts to suppliers. Accrued taxes and payroll that you owe are also liabilities. Equity is the difference between the assets and liabilities what would be leftover to repay original investors. In the case of a sole proprietorship, the equity would be the amount you, the owner, would receive if you sold all your assets and paid all your liabilities. Income Statement An income statement shows how much money the company made in a defined time period, such as last month, last quarter or last year. The statement starts with the money the company brought in and then subtracts the expenses associated with producing that income, such as the cost of supplies, payroll and office rental. This statement also subtracts expenses such as depreciation and any items that were returned. When all of the deductions are made, the result is the company's net income or net loss for the time period show on the statement. Purpose Banks want to see balance sheets and income statements to determine if youre earning enough to repay the loan youre requesting. If you want to open an account with a vendor, they may ask to see these financial statements to verify that youre making a profit, so the vendor is less likely to stuck with unpaid bills. Balance sheets and income statements can highlight trouble areas, such as chronic late payment fees for bills, or back taxes that you owe. If the income statement shows a high rate of returns, this could point to problems with your product that need to be addressed. While an occasional loss, especially in the early days of a business, may not be a concern, a string of losses after a period of

profitability may mean youre digging a financial hole you cant climb out of without making drastic changes. A financial adviser or business mentor can review your financial statements with you and help you make wise decisions for your business. Considerations Financial statements such as balance sheets and income statements are part of a whole package of documents you and investors can use to learn about a business. All the statements should be reviewed together, along with all related footnotes and the Managements Discussion and Analysis section, in which company managers highlight industry trends and other information specific to their business which have affected or will affect company performance. All this information taken together can give you a more complete picture of a companys current financial health and potential future performance. ANSWER 5 Information technology revolution. Information Technologies' (ITs) developments in the 1990s revolutionise both the global economy and enterprises around the world regardless of their size, product and geographical coverage. At the macroeconomic level, ITs are increasingly regarded as instrumental in regional development and long term prosperity of regions. There is therefore an emerging need for competitiveness of both enterprises and regions which will be based on the new information society and the knowledge-based economic powers. Thus the competitiveness of regional economies and enterprises will to a great extend depend both on the conditions of utilisation and on the development and application of these technologies (EC,1993). Tourism is inevitably influenced by the business re-engineering experienced due to the technological revolution (WTO,1988). As information is the life-blood of the travel industry (Sheldon,1994), effective use of technology is fundamental to the tourism sector as we approach the 21st century (Wayne,1995). Therefore "a whole system of ITs is being rapidly diffused throughout the tourism industry and no player will escape its impacts" (Poon,1993). The ITs' revolution, has profound implications for the tourism industry management, mainly by enabling efficient co-operation and offering tools for a real globalisation. ITs have undoubtedly become one of the most important elements of the tourism industry as in few other economic activities are the generation, gathering, processing, application and communication of information as important for day-to-day operations (Poon,1993). Consequently the rapid development of both tourism supply and demand makes ITs an imperative partner of the industry and thus ITs increasingly play a more important role in tourism marketing, distribution, promotion and co-ordination (Buhalis,1995). Unlike durable goods, intangible tourism services cannot be physically displayed or inspected at the point of sale before purchasing. They are normally bought before the time of their use and away from the place of consumption. In the marketplace, therefore, tourism products are almost exclusively dependent upon representations and descriptions by the travel trade, ie. information in printed and audio-visual forms for their ability to attract consumers. Timely and accurate information, relevant to consumers' needs is often the key to successful satisfaction of tourism demand. Experienced travellers are increasingly empowered by ITs use information and booking systems independently in order to increase their personal efficiency and to create tailor-made products which gratify their needs. ITs have a dramatic impact on the travel industry because they force this sector as a whole to rethink the way in which it organises its business, its values or norms of behaviour and the way in which it educates its workforce (Vlitos-Rowe,1995). ITs' impacts in the tourism industry are increasingly evident in the marketing, distribution and cooperation functions of both the private and public sector. More specifically, ITs enhance tourism distribution to an electronic marketplace where easy access to information and ubiquity is achieved and thus the interactivity of principals and consumers is enhanced. This new potential can be very beneficial for innovative Small and Medium sized Tourism Enterprises which hitherto had little means to communicate directly with consumers as well as to defend themselves against the horizontal and vertical integration of large multinational tourism corporations (Buhalis,1994 and 1995). Computerised networks and electronic distribution lead the dramatic structural changes within the tourism industry, and become central to the distribution mix and strategy. Computer Reservation Systems (CRS) are clearly regarded as the most important facilitators of these changes as they formulate a new travel marketing and distribution system. In its simplest form, a CRS is a database which enables a tourism organisation, to manage its inventory and makes it accessible to its distribution channel partners. The rapid growth of both tourism demand and supply in the last decades, demonstrated that the tourism industry could only be managed by powerful computerised systems. Airlines were the pioneers of this technology, although international hotel chains and tour operators realised the potentials and followed by developing centralised reservation systems. The need for CRSs arises from both the demand and supply, as well as from the expansion of the tourism industry in the last decades. From the tourism demand side, the rapid growth of travellers urges the utilisation of powerful CRSs for the administration of the traffic. CRSs satisfy consumer needs for easy access to transparent and easy to compare information on a wide variety of choices of destinations, holiday packages, travel, lodging and leisure services, the actual prices and availability of such services. They also provide immediate confirmation and speedy documentation of reservations providing a greater degree of flexibility and enabling prospective travellers to book at the "last minute". Moreover, "improved access to information covering all aspects of tourist activities provided the framework for offering personalised services at prices levels comparable to those of standard packages" (WTO,1988). Increasingly, tourists' satisfaction depends on the accuracy and relevance of tourism information as well as the promptness of responding to consumers' requests (Buhalis,1994). Tourism supply utilises CRSs to manage its inventory and distribute its capacity. CRSs are utilised to facilitate and manage the drastic expansion of tourism enterprises and destinations globally and can be characterised as the "circulation system" of the tourism product. CRSs enable tourism providers to control, promote and sell their products

globally, while assist them to increase their occupancy/load factor levels and to reduce seasonality. They can also contribute to their profitability and long term prosperity as they enhance numerous business functions. In addition, CRSs often charge competitive commission rates in comparison with other distribution options, while enable flexible pricing and capacity alterations, in order to adjust tourism supply to demand fluctuations. CRSs also reduce communication costs, while provide managerial information on tourism demand patterns or competitors' position. Cooper and Buhalis (1992) suggest that principals can enjoy several competitive advantages when represented on CRSs, namely: products on the CRSs will provide value added products by widening the availability of services on the system to allow customising; CRSs can facilitate yield management systems providing profitable inventory management; CRSs can affect price competition through cost savings and efficiencies in operational management and communication; CRSs allow an increased volume of transactions to be handled and both simplify and speed the process; CRSs initially allowed operatives at the pint of sales to be locked in or to prefer a particular company's system over a competing one or over competitors who are not on a system. At the destination base, Destination Integrated Computer Information Reservation Management Systems are emerging as strategic tools for the competitiveness of Small and Medium sized Tourism Enterprises and the diagonal integration of destinations. These systems aim to ameliorate the information delivery and reservation function for prospective and actual tourists by using widely distributed multimedia presentations. They attempt to facilitate multi-integration at the destination level aiming to enhance the multiplier effects in the local economy and to provide a strategic management tool for the entire range of tourism related enterprises at destinations. This enables the delivery of a better co-ordinated tourism product which consequently contributes to the consumer satisfaction (Buhalis,1994 and 1995). In addition they can play an instrumental role in destinations' ability to improve their economic, socio-cultural and environmental impacts and to sustain their resources (Buhalis,1996). ANSWER 6 A business organization is a legally recognized enterprise established to provide goods and/or services to consumers. That is, to provide goods only to consumers, or services only to consumers, or both goods and services to consumers. Business organizations can take different forms which include the Sole Proprietorship, Partnership, Limited Company, Cooperative Enterprise, and Public Enterprise. We will start with the Sole Proprietorship. SOLE PROPRIETORSHIP The Sole Proprietorship can also be referred to as the Sole trade or One mans business. It is a business owned and managed by one man, the sole proprietor, who provides all the capital needed to start and run the business. He alone bears all the risks in running the business and enjoys all the profits made by it. The sole proprietor has unlimited liability. This means that he is responsible for any debts incurred by the business at any given time, even if he has to sell his personal property to pay the debts. This is because he is not considered a separate legal entity from the business. That is, there is no legal distinction between him who is the owner of the business and the business itself. Whatever debts or losses the business incurs, he directly incurs. The Sole proprietorship is the oldest and most common form of business. It is easy to form, and is set up for the purpose of making profit. Some of the common Sole proprietorships established by individuals include Consultancies, saloons, computer business centers (typing pools), and more. Sources of Capital to the Sole Proprietorship The proprietor is able to raise the capital he needs to start and run his business through the following sources: 1. Personal savings 2. Loans from individuals who share a close tie (family members, friends, etc) 3. Funds from financial institutions such as banks (usually in the form of loans and overdrafts) 4. Funds from the government (usually in the form of grants and loans) 5. Trade credit This is an advantage to a proprietor who are credit worthy. Advantages of the Sole Proprietorship 1. The capital needed to start up the business is small. This is why it is easy to form and the most common form of business. 2. The sole proprietorship requires fewer regulations to operate compared to the other forms of business organizations. 3. The sole proprietor has total control over his business and can make timely decisions without consulting any one. 4. The sole proprietorship does not pay corporate taxes. The sole proprietor does not pay personal tax separate from the corporate tax of the business. He pays personal tax on profits made. Therefore, the sole proprietorship is not concerned with double taxation as some other forms of business. 5. All the profits and benefits of the business belong to the sole proprietor. 6. The small size nature of the organization allows the proprietor have a direct and cordial working relationship with his employees. He can easily manage them effectively and efficiently for the success of the business. 7. The sole proprietorship is a very flexible form of business. This means that the sole proprietor can easily make a decision or change a decision earlier made at any given time to be able to adjust to changes in the business environment. 8. Unlike some other forms of business organizations, the sole proprietorship does not submit its annual accounts to the registrar of companies nor publish it for all to see as required by the law. Disadvantages of the Sole Proprietorship 1. The sole proprietor has unlimited liability.

2. To run the business successfully, the sole proprietor continues to raise capital to meet the needs of the business, to pay its debts and sort out any losses, as well as compete with others in the business environment. This continuous raising of capital is usually difficult for the sole proprietor to bear alone. 3. Limited expansion - Because the sole proprietor is faced with difficulties in raising capital, it might be difficult to expand the business and even increase profits. For this reason, sole proprietorships tend to be small and are primarily service and retail businesses. Even when a sole proprietorship business is successful and tends to expand, the risks borne by the sole proprietor increases. To minimize those risks, the proprietor has the option of forming a corporation or a Limited Liability Company. 4. The sole proprietor makes business decisions without consulting anyone. This means that the advantages of exchanging ideas with others for making better decisions and having better solutions is lacking. 5. The death or incapacity of the sole proprietor may put an end to the business. Even where the business is taken over by someone else, it may end if the person does not have the appropriate skills and cannot manage the business effectively. 6. The sole proprietor is not separate from the business. This means that he is sued over issues that concern the business. The business cannot sue and be sued in its name. 7. The sole proprietor bears all the business risk alone.

ANSWER 8 The Break-even Point is, in general, the point at which the gains equal the losses. A break-even point defines when an investment will generate a positive return. The point where sales or revenues equal expenses. Or also the point where total costs equal total revenues. There is no profit made or loss incurred at the break-even point. This is important for anyone that manages a business, since the break-even point is the lower limit of profit when prices are set and margins are determined. Achieving Break-even today does not return the losses occurred in the past. Also it does not build up a reserve for future losses. And finally it does not provide a return on your investment (the reward for exposure to risk). The Break-even method can be applied to a product, an investment, or the entire company's operations and is also used in the options world. In options, the Break-even Point is the market price that a stock must reach for option buyers to avoid a loss if they exercise. For a Call, it is the strike price plus the premium paid. For a Put, it is the strike price minus the premium paid. The relationship between fixed costs, variable costs and returns Break-even analysis is a useful tool to study the relationship between fixed costs, variable costs and returns. The Breakeven Point defines when an investment will generate a positive return. It can be viewed graphically or with simple mathematics. Break-even analysis calculates the volume of production at a given price necessary to cover all costs. Break-even price analysis calculates the price necessary at a given level of production to cover all costs. To explain how break-even analysis works, it is necessary to define the cost items. Fixed costs, which are incurred after the decision to enter into a business activity is made, are not directly related to the level of production. Fixed costs include, but are not limited to, depreciation on equipment, interest costs, taxes and general overhead expenses. Total fixed costs are the sum of the fixed costs. The Breakeven Chart A breakeven chart is a strategic tool used to plot the financial revenue of a business unit against time or sales to determine the point when sales output is equal to revenue generated. This is recognised as the breakeven point. The information used to determine and analyse the breakeven point includes fixed, variable and total costs and the associated sales revenues. They are defined as: Fixed costs: costs that do not vary in relation to the level of sales output, for example rent. Variable costs: costs that vary in proportion to the level of sales output, for example materials. Total costs: the sum of all costs, including fixed and variable. Associated sales revenues: the total revenue made by the company from sales. It can be derived by multiplying price by output. The analysis of a breakeven chart considers whether a venture runs at a profit or a loss. Sales above the breakeven point indicates continued and profitable growth. The principle of break-even theory is that during the early stages of a business venture, total costs, both fixed and variable, exceed sales. As output increases, sales begin to rise faster than costs and, eventually, they become equal (breakeven point). If sales continue to rise and exceed total costs, the business achieves profitability. The tool assumes that all the goods which are produced will be sold and that costs, namely the price, will remain constant. Likewise, it also relies on the capacity in terms of output to remain unchanged. Breakeven charts are universally applied to simply and graphically illustrate and forecast a company's projected revenue, and to calculate the time for profitability to be reached. It is used by financial and marketing strategists to predict the effect that changes in price will have on the percentage change in sales over time. It is also a useful tool to analyse the relationship between fixed and variable costs and to predict the effect on profitability of changes to those costs. IMPACT OF BNREAK EVEN ON COSTING

Breakeven analysis is a powerful management tool, and one that is critical in planning, decision-making, and expense control. Breakeven analysis can be invaluable in determining whether to buy or lease, expand into a new area, build a new plant, and many other such considerations. Breakeven analysis can also show the impact on your business of changing your price structure. As the price goes down (and so your gross margin goes down), breakeven shoots up usually very rapidly. Breakeven analysis will not force a decision, of course, but it will provide you with additional insights into the effects of important business decisions on your bottom line. Breakeven refers to the level of sales necessary to cover all of the fixed and variable costs. Fixed costs are those costs or expenses that are expected to remain fairly constant over a reasonable period of time. These costs are relatively unaffected by changes in output or sales up to the point where the level of operation reaches the capacity of the existing facilities. At that point, major changes would have to be made, such as the expansion of existing plant and equipment or the construction of new facilities. Such actions would increase the fixed costs. However, under normal operating conditions, the fixed costs (also referred to as indirect costs, overhead, or burden) will remain constant. Some examples of fixed costs include rent or mortgage payments, interest on loans, executive and office salaries, and general office expenses. Variable costs are those costs or expenses that vary or change directly with output. These costs are associated with production and/or selling and are frequently identified as "costs of goods sold." As compared with the fixed costs, which continue whether the firm is doing business or not, variable costs do not exist if the firm is not doing business. Thus, by definition, variable costs are zero when no output is being produced. At that time, fixed costs are the only costs that will be incurred. Examples of variable costs include cost of goods sold, factory labor, and sales commissions. Break-even analysis will provide a sales objective that can be expressed in either dollars or units of production or sales, or whatever else is relevant. If the breakeven point is known, it can be a definite target to be reached and exceeded by carefully reasoned steps. The basic breakeven equation is B/E = FC + VC, where FC = fixed costs in dollars and VC = variable costs in dollars. Variations on this basic formula which can be used when different combinations of the basic factors are known, such as: B/E = FC/(1-VC/S), where FC = total fixed costs in dollars, VC = total variable costs in dollars, and S = total sales in dollars. It is also possible to calculate your breakeven point when you do not know what your total variable cost will be, but you know your gross margin. The gross margin is the percentage of gross profit to sales (gross profit divided by sales). The gross profit is the amount remaining once the variable costs have been subtracted from sales. This equation is B/E = FC/GM, and GM = GP/S, where FC = total fixed costs in dollars, GP = gross profit (or sales minus variable costs), and S = sales in total dollars.