Uses of Breakeven

Question 1

Benefits of breakeven - 3

Answer 1

What if Analysis - can be used to analyse the impact of varying, prices, production costs

BE point is a useful guideline in helping a business make decisions (links to changing variables and BE analysis red textbook)

simple and easy to use - don’t have to be an expert to work it out

Question 2

Limitations of breakeven analysis - 3 (read notes)

Answer 2

1) Multi-product businesses - BE analysis simplifies what can be a very complex process, most businesses sell different products, which makes BE more difficult. - difficult to allocate TC + TR lines.

2) Costs are rarely constants - BE analysis presumes that costs stay the same over various levels of output.

3) BE focuses on output - it presumes that the business will sell all of its products at the same price.