Md. Hanna et al., ADAPTING TRADITIONAL BREAK-EVEN ANALYSIS TO MODERN PRODUCTION ECONOMICS - SIMULTANEOUSLY MODELING ECONOMIES OF SCALE AND SCOPE, International journal of production economics, 29(2), 1993, pp. 187-201
Although sophisticated models exist for the justification of advanced
manufacturing technologies, practitioners often rely on simple tools,
such as cost volume breakeven analysis (CVBA), to make initial compari
sons between equipment alternatives. In the case of expensive automati
on technologies this initial comparison may be followed by further att
empts, using more sophisticated models, to define the costs and benefi
ts of the alternatives remaining after CVBA. Ultimately, a leap of fai
th based upon some ''intangible' benefits may underlie the actual adop
tion of new manufacturing technology (NMT). Finally, the implementatio
n process determines the actual costs incurred and benefits derived fr
om NMT. In this paper, we provide a historical perspective and show th
at CVBA is inadequate in the context of the process of justification f
or modern automation technologies. We also introduce an alternative to
CVBA, cost volume flexibility breakeven analysis (CVFBA) and use exam
ples to demonstrate its usefulness, particularly in the context of mod
ern manufacturing technologies. CVFBA provides an approach which allow
s both economies of scale and economies of scope to be considered in i
nitial comparisons between equipment alternatives. It may be applied a
t various levels of the managerial decision hierarchy.