r sectors.
Some companies base their marketing strategy on one particular product. The Coca-Cola Company would never stop the production of Coca-Cola, even if it would suffer losses, according to a breakeven analysis, simply because the product is the symbol of the entire organization. A company may wish to keep its market share for a while, as it is experiencing various reforms, and then compete at full capacity with rival firms, which have managed to produce at lower costs in the mean time.
Of course, one very interesting thing one might do is to investigate the legal consequences of selling something for a price under the production costs. Anti-dumping regulations may prohibit such an action, especially if it takes place for an extended period of time. Most states have very strict regulations in this area.
The third point I think is worth mentioning is that the whole idea of breakeven analysis is a scholastic simplification of the economic processes which are taking place in an organization. After all, it's no big secret that the price should be larger than the cost, and that the difference between the two is profit. However, the real life brings a few surprises.
For instance, every sensible person would state without hesitation that a company which is suffering losses is on its way to bankruptcy. This is not always true. Losses may be provoked on purpose, or may not even be real (since company books may be falsified in order to avoid paying taxes). Losses are deductible from the profits reported in previous years, so an unscrupulous manager may use this facility to purposely lead the company to start losing money, which will be than compensated with anterior profits.
Expenses may be artificially increased and may become larger than the actual income. The difference is obviously reported as a loss. A loss is not subject to taxes and may even be considered a solution for tax avoidance. The point I am trying to make is that breakeven analysis is not to be evaluated on its own, but also in conjunction with state fiscal policies and the attitudes towards taxation of companies' managers.
I have obtained the income statement of Xerox Corporation from the MergenT financial information service, which provides articles about all major companies in the U.S.A. It is easy to notice that the net income (or loss) is analyzed in a separate manner from Fixed Costs, and there is no obvious connection between fixed elements and profit.
The goal of each company is to obtain a fixed profit margin, so that shareholders, investors, creditors and other interested parties may rely on it. However, approaching the profit margin issue conservatively reduces the chances of a corporation to flexibly adjust to changes in the economic environment.
The second point, referring to production of articles for which the profit is negative, is not something to be found in an income statement and is more of an internal problem of the company. However, Xerox sells a lot of products for which servicing is necessary. Service Spare parts may prove unprofitable to make. Still, it is inconceivable to think that Xerox does not provide such services just because it costs a little more than it brings, as long as the good name of the company is at stake.
The third point is impossible to make in Xerox's case, as this is one of the corporations that have performed very well lately. It is unlikely that Xerox's managers resort to such practices in order to simply cheat the revenue service.
Xerox's future activity should be concentrated on maintaining the current levels of revenue and net income. Xerox's performance has been quite surprising in the last…