Breakeven Anaylisis

Question 1

What is Break Even Analysis?

Answer 1

A financial tool used to determine the point at which total revenues equal total costs.

Question 2

What are the pros of Break Even Analysis?

Answer 2

1. Useful tool for management.
2. Highlights the importance of fixed costs.
3. Data generated can be used in a business plan.

Question 3

What does Break Even Analysis predict?

Answer 3

1. Break even output.
2. Margin of safety.
3. Estimate profits at different outputs.
4. Chance of sales price and predict new break even output, margin of safety, and profits.

Question 4

What is a key benefit of Break Even Analysis?

Answer 4

It provides lower risk based on predicted data, not actual data.

Question 5

What are some cons of Break Even Analysis?

Answer 5

1. Many unrealistic assumptions.
2. One same price used for all units.
3. No waste.
4. All units produced are sold.
5. No refunds.
6. Production cost remains the same.
7. Only one product is sold.

Question 6

What assumptions are made in Break Even Analysis?

Answer 6

1. No economies of scale.
2. No product for trade.

Question 7

How can data from Break Even Analysis be used?

Answer 7

It can help in the analysis of sources of finance.

Question 8

What factors affect the accuracy of predicted data in Break Even Analysis?

Answer 8

1. Price.
2. Variable costs.
3. Fixed costs.