break even analysis

Question 1

what is the break even point?

Answer 1

where a total revenue earned for a product is exactly equal to its total costs and where the business is making neither a profit nor a loss

Question 2

what does break even help to identify?

Answer 2

Identifying the break even point allows a business to understand how many items it needs to produce and sell to cover all costs before it starts to make a profit

Question 3

what is margin of safety?

Answer 3

the margin of safety is the difference between the actual level of output of a business and its break even level of output

Question 4

limitations of break even analysis

Answer 4

• less useful if a business produces multiple products
• assumes that all output is sold
• cannot easily be amended