3.5.2.6 Analysing Financial Performance: The Value of Break Even Analysis.

Question 1

What are some of the strengths of break even analysis?

Answer 1

Calculate how long it will take to reach the level of output needed to make profit.

Simple way of analysing whether a plan is likely to financially succeed.

Question 2

What are some of the weaknesses of break even analysis?

Answer 2

Information may be unreliable.

Sales are unlikely to be the same as output.

Fixed costs may not stay the same as output changes, in practice.