Meaning of Break Even Analysis, methods, characteristics, advantages, disadvantages, concepts.

1. BREAK-EVEN
ANALYSIS

5. Characteristics of Break-Even
Point
The losses cease
to occur while
profits have not
yet begun.
It suggests the
BEP level (profit
or loss).
It indicates the
minimum level of
production/sales.

9. Basic Assumptions
It assumes that cost can
be classified into fixed
and variable costs.
Sale price of the
product is constant.
It assumes constant rate
of increase in variable
cost.
No improvement in
technology and labor
efficiency.
Changes in input prices. The production and
sales are synchronized.

17. Uses of Break-Even Point
Helpful in deciding
the minimum
quantity of sales
Helpful in the
determination of
tender price
Helpful in
examining effects
upon
organization’s
profitability
Helpful in deciding
about the
substitution of new
plants
Helpful in sales
price and quantity
Helpful in
determining
marginal cost

18. Advantages of Break-Even
Analysis
Explains the
relationship
between cost,
production,
volume and
returns.
Shows the effect
of profit levels.
Useful when
used with partial
budgeting.
It helps to
prevent losses.

19. Limitations of Break-Even
Analysis
It is only a supply side (i.e. costs only).
Fixed costs (FC) are constant.
Average variable costs are constant per unit of output.
The quantity of goods produced = quantity of goods sold.
Profit are the function of output alone.