Break-Even Analysis Flashcards
The break-even output is…
the level of output where the firm will just cover it costs.
How can Break-even output be worked out?
By making a break-even chart - output on the x axis and costs and revenue on the y axis.
What is The Margin of Safety?
The gap between the current level of output and the break-even output.
What are the advantages of Break-even Analysis?
Easy to work out
Quick - if business decides they want to increase their margin of safety, they can take immediate action to increase sales or reduce costs.
Allows business to predict how changes in price and costs will affect sales.
Help persuade a bank to give them a loan.
Break-even analysis assumes that…
The firm can sell any quantity of the product at the current price and that all of the products are sold without any waste.
If the data is wrong…
Result of analysis will be wrong.
It can be complicated if it…
Involves more than one product.
It only shows how much a business…
needs to sell and not how much it actually will sell.
