This review applies to the link to the first Break-Even Analysis demo that appears on the Knowledge Dynamics, Inc., web site (not the new Breakeven analysis created in Flash with Magnesium suite components). Break-Even Analysis is a very sophisticated simulation built with KDCalc simulation logic software from Knowledge Dynamics, Inc. The purpose of the simulation is to consider marketing investment, outsourcing, automation, fixed and variable costs, price and demand to which the CEO, Vice President of Marketing and Vice President of Manufacturing agree, such that the break-even date is within two years. The simulation begins with a course overview that includes learning objectives, the storyline, and steps to follow to complete the module. Upon entering the simulation, an optional voice enhanced introduction is available. The actual simulation consists of a very thorough interactive Break-Even Analysis calculator that asks users to make a number of production and marketing decisions, specify the break-even formula, and classify fixed and variable costs. From the decisions chosen, the simulation calculates key performance indicators (fixed cost, variable cost, production capacity/year, break-even volume, break-even revenue, and years to break-even). A color-coded break-even graph charts break-even volume, revenue, total cost, variable cost and fixed cost for the parameters selected. As a result, the simulation can be used to illustrate sensitivity analysis by changing values assigned to various variables. Appropriate help materials are included (glossary, reference) that can be printed.
To understand the impact of price, fixed and variable costs, outsourcing, automation, and marketing investment on the break even point.
Target Student Population:
College/graduate students enrolled in managerial or cost accounting and possibly finance classes.
Prerequisite Knowledge or Skills:
Instructors should be well versed with break even analysis. Students should have a general understanding of break even analysis concepts, including how to read a graph, as well as how outsourcing and automation affect the break even point.
Type of Material:
Class demonstration, individual homework, team project, simulation or lecture to teach a concept as part of an online course.
High speed Internet Connection and Macromedia Flash software.
Evaluation and Observation
The quality of most of the content in this simulation is high, with the exception of the concern noted below. Definitions for terms in the glossary as well as information contained in the reference materials are accurate. The module demonstrates core concepts grounded in the discipline, and they are integrated very well. The simulation is flexible in that it can be used in several situations: as a class demonstration, for individual homework or group project and is suitable for both on-campus and online courses. The amount of material included is adequate, and the module is satisfactorily self-contained when the proper context is established such that a student can learn much in a short time.
The module seems to be mixing apples and oranges in terms of its purpose, i.e., making acceptable marketing and production decisions such that break-even occurs within 2 years. In order for this simulation to teach correct concepts, students need to find a solution where demand for the product is <= plant capacity and the break even volume <= to both demand and plant capacity. Many scenarios are judged acceptable by the CEO, Vice President of Marketing, and Vice President of Production, yet some make no sense from a financial standpoint. The fact that fixed costs recur every year appears to be ignored. The purpose of break-even analysis is to determine the sales needed to cover fixed costs in one particular year. Computations generated by the program for break even volume and break even revenue did not match those calculated manually. The break-even formula given in the reference materials states that (price * volume) = (variable costs * volume) + fixed costs. When numbers generated by the simulation are plugged into this formula both sides of the equation do not equal.
Potential Effectiveness as a Teaching Tool
Framed within the proper context (see concern below), this simulation could be an extremely useful experiential learning too. Students can see, in real time, the impact of chosen alternatives on the break even point mathematically and graphically. The simulation overview identifies learning objectives and provides the storyline for the simulation.
In order for this simulation to teach correct concepts, students need to find a solution where demand for the product is <= plant capacity and the break even volume <= to both demand and plant capacity. Students need to be warned that just because the CEO, and two VP's have no problem with parameters chosen does not mean the solution generated will make sense logically. It may take many iterations before one arrives at a best decision and as a result the simulation may be somewhat inefficient. It is also unclear whether some of the costs are fixed or variable. Having more background and guidance on the potential impact of marketing investment, outsourcing and automation would be helpful. Feedback appears to be omitted to let users know if cost elements have been correctly categorized as fixed or variable. Finally better feedback also should be provided on the next step to take to solve the problem.
Ease of Use for Both Students and Faculty
Developed with KDCalc simulation logic, the design of this Break Even Analysis demo is of extraordinarily high quality. Both video and voice have been integrated. Instructions are clear. It is very engaging and interactive and relatively straight forward to use. Scenarios can be saved via screen capture (press Print Screen key) and pasted into a Word document.
The simulation appears to be better suited for users who have high speed broadband access. While the introduction did load in a reasonable amount of time from low speed dial up access (56.6Kbps modem),
after waiting 20 minutes, the simulation continued to display the "loading" logo. Also, the placement of various links (instructions and resources) could be improved.
Other Issues and Comments:
This material could be valuable in enhancing a student's understanding of the relationship of decision variables to break even point determination and analysis by revealing in real time the impact of choosing different values for the variables in the simulation.
Comments from Author:
The reviewer indicates that information related to manufacturing and marketing values is missing. This information is available in the Manufacturing and Marketing reports in the 'References' menu of the main page here: http://www.knowledgedynamics.com/demos/Breakeven/index.htm
The reviewer indicates that "It may take many interations before one arrives at a best decision ". This is as designed,
to allow the student ample opportunity to practice and achieve the goal of breaking even within 2 years. This goal is framed up for the student in the introduction.