ADAPTING TRADITIONAL BREAK-EVEN ANALYSIS TO MODERN PRODUCTION ECONOMICS - SIMULTANEOUSLY MODELING ECONOMIES OF SCALE AND SCOPE

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.