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Break-even point analysis and profit maximization with the existence of inventory, obsolesence of the inventory and the existence of escaped profits

J. Ananiadis. Aristotle's University of Thessaloniki


The purpose of the present paper is to expand on the algebraic break-even point analysis relaxing the linearity assumption. Moreover, the model developed in the paper takes into account two potential situations concerning the volume of production:

  • Production exceeds demand, a situation which bears implications for inventory considerations, i.e., part of the overheads should be assigned to inventories, and
  • Demand exceeds production, a situation that necessitates lost profit considerations since the volume of production is insufficient to cover the demand.

The inclusion of demand considerations into the model results in profit maximization conditions that conform to real - world situations and therefore, provides management with better insights as to what actions should be undertaken.

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