Question

Advantages and disadvantages of break even analysis

Answer 1

ADVANTAGES
Break-even analysis enables a business organization to:

Measure profit and losses at different levels of production and sales.

Predict the effect of changes in sales prices.

Analyze the relationship between fixed and variable costs.

Predict the effect of cost and efficiency changes on profitability.
DISADVANTAGES
Even with its advantages and uses, there are also several demerits of break-even analysis.

Assumes that sales prices are constant at all levels of output.

Assumes production and sales are the same.

Break even charts may be time consuming to prepare.

It can only apply to a single product or single mix of products.