1999 Volume 7 Issue 1-2 Pages 49-63
Traditional break-even analysis for the purpose of short-term profit planning has been extended to many types of variations, such as multiproduct CVP analysis, non-linear CVP analysis, CVP analysis under uncertainty. These models, however, remain to static since the concept of the passage of time is not introduced in the observed accounting period. Then the dynamic break-even analysis (prototype) on the assumption that revenue and expense functions were linear was proposed, but this model was not practical.
This article extends the traditional static model to the dynamic model of break-even analysis by introducing the concept of time passage as a discrete variable, and proposes the new methods of analyzing the structures of revenues and expenses which are dated variables. And another purpose of this paper is proposed the method to illustrate this dynamic model in 3-dimensional space which consist of time variable, sales variable, and expense-revenue variable.
And a time period in this dynamic model is one year, so time variable of this model is treated as discrete variable in terms of week, month, and quarter or etc. as unit period of time.
In this dynamic model, a revenue function at the end of each unit period of time is linear, and an expense function is a piecewise linear function. This model expands revenue and expense straight lines in the traditional model to piecewise surfaces of revenue and expense which kink at the end of unit period of time in this dynamic model. And a traditional break-even point is developed as a break-even line which is the line of intersection of the revenue surface and the expense surface.
In short-term profit planning, for example budgeting, this model is practical, because this model is analyzed as time goes by.
