Break even Analysts; break even point (20)

Break even Analysts

Break even analysts means it is an analysts which helps the firm to identify the output level ,they should produce to start earning profits and stop earning losses.

Break even point shows the output level where Total Revenue = Total Cost.

In other words it shows the output level at which the firm stop earning losses and start earning profits.
This can be calculated by formula as:

Break even point = Fixed cost / contribution (SP-VC)


It can be shown graphically as follows,

Advantages of calculating break even point

1. It shows the number of units the firm should sell to start earning profits.
2. It shows the margin of safety,the output level which a business should produce to maintain current profit level.

• margin of safety = actual output - B.E level

3. It is essential while obtaining an external source of finance.
4. It helps the firm to determine the different pricing strategies.

Disadvantages

1.When it calculate they will not take into account market changes.
2.BEP prepared based on assumption which might not be accurate.
3.Preparing a plan doesn't ensure the success of the business it might be a time and cost waste.