ABSTRACT
As we have seen in chapter 16 (on break-even analysis), it is important to establish simulations in order to estimate the amount of volume necessary to absorb fixed expenses. At the least, total revenues should equal total expenses (both fixed and variable). In order to ensure that revenues far exceed expenses, and to ensure the survival of the business, it is necessary to establish some method of financial control. The margin rate will assist in meeting that objective. For companies with limited product lines, or for companies that can computerize these data, this method provides an excellent tool for use in controlling the business. It also provides a tool for maximizing return on investment rates, since the profitability rate will greatly affect the overall return on investment equation.
