advantages and disadvantages of break-even

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  • Created by: supprija
  • Created on: 14-05-17 17:11

Using break-even point

Advantages

  • shows how many items needs to be sold to make profit for the business
  • useful tools to set targets
  • identifies the fixed and variable costs
  • easy way to calculate the profit or loss at different level of output

Disadvantages

  • information can be reliable (less knowledge)
  • assumes that the costs and revenue don't change with output
  • target set may be too high, creating stress

Evaluation

Break-even point is a point where a business makes neither a profit or a loss.it shows: - how many items it needs to sell to break-even-predict future future profit- impact change on cost/revenue has- decisions that may need to be madeFormula= fixed cost/ (selling price - variable costs)

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