ABSTRACT
This chapter presents several simple yet useful methods of cost analysis. Break-even analysis has been extensively used in business, and benefit-cost analysis in government. The fundamental law of operation that serves as the basis for break-even analysis is universal, but for the law to be of any practical significance one must be able to demonstrate how this relationship works in reality. The mathematical relationships underlying the cost and revenue functions provide a basis for developing a set of simple algebraic expressions that can be used to deal with various break-even problems such as break-even quantity, break-even price, break-even revenue, and so forth. Operating leverage is the measure of the extent to which fixed production facilities affect the operation of a project. In other words, it measures the sensitivity of an operation resulting from the use of fixed, rather than variable inputs.
