Breakeven Analysis: Cisco Wireless Access Points
This paper applies breakeven analysis to Cisco's Outdoor Wireless Access Points, specifically examining the potential impact of switching to a less expensive weatherproof casing supplier. Using the Cisco 1310 Aironet Access Point as the unit of study, the paper estimates variable costs, draws on Cisco's FY2011 Router division revenue to approximate fixed costs, and calculates breakeven unit volumes under both the current and proposed supplier scenarios. The analysis finds a modest reduction in the breakeven point under the new supplier and discusses when the switch would be advisable, including considerations of product quality and customer satisfaction.
- Introduction and Scope: Defines the product and supplier-change scenario
- Cost Structure and Assumptions: Estimates variable and fixed costs from revenue data
- Breakeven Variables Defined: Lists and labels all breakeven formula inputs
- Breakeven Calculations and Results: Computes breakeven units under both supplier scenarios
- Conclusion and Recommendations: Advises when supplier switch is warranted
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What makes this paper effective
- The paper clearly defines its unit of analysis (the Cisco 1310 Aironet Access Point) and the specific business decision being modeled (a casing supplier switch), giving the breakeven analysis a concrete, focused scope.
- It explicitly labels variables (V1, V2, P, TFC) before performing calculations, making the methodology transparent and easy to follow.
- The conclusion goes beyond the numbers by acknowledging qualitative factors — customer returns and product quality — that should also inform the supplier decision.
Key academic technique demonstrated
The paper demonstrates applied quantitative reasoning: translating real financial data (Cisco FY2011 revenues) into model inputs through reasoned estimation, then using the standard breakeven formula to derive actionable business insights. This bridges textbook formulas and real-world managerial decision-making.
Structure breakdown
The paper opens by establishing context (Cisco's product line and the proposed supplier change), then builds up cost assumptions before formally defining breakeven variables. Calculations follow, and the paper closes with a brief but substantive recommendation that integrates both quantitative results and qualitative risk factors. The structure mirrors a standard managerial analysis memo.
Introduction and Scope
This paper applies breakeven analysis to one of Cisco's Wireless Solutions for small business. The unit of measurement under consideration is the sale of individual Outdoor Wireless Access Points — devices that allow companies to extend their wireless networking capabilities outdoors to courtyards, porches, balconies, and parks. Outdoor Wi-Fi access points have also been used by civic organizations to create "wireless clouds" in cities such as Portland, OR and Atlanta, GA.
The specific activity being analyzed is a possible change of supplier for the weatherproof plastic casing of the outdoor access points. This change would reduce each unit's variable cost by $5, and the goal of this analysis is to determine how that reduction affects the breakeven volume for Cisco's Router division.
Cost Structure and Assumptions
The retail sale price of a Cisco 1310 Aironet Access Point is $849.00 through Tiger Direct. Fixed costs for this item cover divisional overhead, while variable costs include electronic components, research and development, casing, packaging, and all associated manufacturing and transportation costs. Although the profit margin for consumer electronics is generally low, it may be higher in the case of enterprise-level electronics such as those Cisco manufactures.
The variable cost for each unit is estimated at roughly 40% of the retail price, or $340.00. In the current financial year, Cisco's Router division brought in $5,367 million in revenue — roughly 17% of overall company revenue. Making a conservative assumption that the Router division's overhead represents 20% of all operations-related overhead in FY2011 yields an estimated total fixed cost for that division of $394.6 million (Cisco, 2011).
References
Cisco. (2011). Quarterly financial results FY2011. Retrieved from https://investor.cisco.com/results.cfm
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