Report on the viability of Braeside Distillery - Essay Example

This includes external factors like, an increase in the prices of oil, which has the capability of increasing its fixed costs. On an overall perspective, the company plans at producing and selling 30,000 bottles of Pure Gold, and if all factors remain constant, this is a very profitable initiative. For purposes of determining the viability and profitability of this project, there will be a need of using the concepts of the Break Even analysis. This will help the company to identify the point where the sale and production of Pure Gold will not result to a loss, or even a profit (Epstein, 2011).

This point of intersection is called the Break Even point. Before the identification of this point, the following are the assumptions that the company should undertake, By carefully looking at this graph, where total revenue and total cost intercept each other, is the Break Even point. This means that, it is at this point of production, where the company will not make any losses nor any profits (Epstein, 2011). From the calculations and the graphical representation, it is possible to denote that the break-even point is 3980, which is a very low figure.

This means that the production and sale of Pure Gold at the conditions identified is a very profitable venture. Furthermore, as previously discussed, the margin of safety of project is very high, which stands at 86.73%. This means that if the sales of the company fall to 86%, the company will still make some profits. One of the major areas where the company is vulnerable to is on the currency fluctuations and value (Epstein, 2011). Currently, the value of the currency stands at 1 pound is equal to 1.28 Euro. However, if the strength of the Euro increases, against the pound, this means that the profitability of the company would decrease.

An increase in the strength of the Euro would mean that it trades at a lower price of 1.28 against the pound. Take for example; the current