Using Break-Even analysis to make decision

Break-Even shows the minimum level of sales needed to cover costs by comparing the sales revenue with the fixed and variable costs of a business .



Break-Even point = Fixed cost / Unit contribution

Unit contribution = Selling price - Variable costs

Total contribution = unit contribution times Quantity



The benefits to use a Break-Even point :

• Enable the business to forecast the costs ,output,and profits.


• Helps the business persuade the bank to lend them money


• Knowing the break- even point and margin of safety allow manager to make business decision more accurately

But Still there are also some problems to use Break -even :

• It cannot prevent the sudden change in market
• if the data is wrong the result will be totally wrong then will affect you business
• It always assumes that variable costs rise constantly-if the business bulk purchasing the goods with discount the cost won't go up

So when start a business you need to consider carefully! Do you really need it !