After completing this week's reading I was most surprised different ways in which a "break-even" analysis can be used. From being to see how much of a product must be sold to return a profit to aiding in the decision making process for questionable costs, the contribution margin approach formula is definitely useful.
One part of the reading that was confusing to me was how the internal rate of return method can be used for capital budgeting. While the payback method seems intuitive to me and I have learned about net present value in my accounting class, I'm simply not familiar with the internal rate of return.
Given the opportunity to ask two questions to the author I would ask the following:
1.) In what scenarios is it most appropriate to allow customers to purchase a product on account?
2.) What other statistical techniques can be used to prepare a sales forecast?
While I understand that allowing customers to sometimes buy products on account can increase sales, the risk associated with such an endeavor seems too high to me. At what point is a customer important enough that they are allowed to purchase on account?
I do not think there was anything incorrect in this chapter. Most of the concept discussed were taught during Introduction to Accounting and as such, I was already familiar with them.
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