Aunt Connies Cookies Simulation - Essay Example

Subsequently, it doesn't turn out to be worth fulfilling the order. Some more facts reveal that the break-even point for the lemon cookies is around 563,000 packs. The current manufacturing is around 600,000 packs, which turns the cycle into a profitable one, as it goes beyond the breakeven, and this manufacturing is around the same marks as the production requirements and monthly targets. However, increasing the break-even volume to 650,000, would not be profitable, despite the firm bring in operating profits.

Though in doing this, the existing unit may be forced to reduce its volumes for lemon cookies, as the variable cost per unit for lemon is on the higher side. These were some outcomes from the simulation conducted, however, the three major learning points were the taking up of key figures of fixed costs, variable costs, and breakeven point. These are the major constituents of cost for running a business. The majority of the costs are easily observable and thus, can be quantified to ensure that their relationship with the level of output can be determined in direct form or otherwise (Costs, 2005, para. 1 and 2). Fixed and Variable costs are the basic bifurcation or classification of costs in a business, while break-even point determines the zero profit/loss levels and beyond this point, is all the profit a firm earns from its operations.

Fixed costs remain the same irrespective of the volume of output, while variable costs vary with the level of output produced (Marshall, McManus, and Viele, 2004, pg. 417). There is another category of costing referred to as mixed cost, and this is a form that contains elements of both fixed and variable costs. The most classical examples are bills that contain a line rent (fixed part) and a unit-based rental (variable part).