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Breakeven analysis is the relationship between cost volume and profits at various levels of activity, with emphasis being placed on the breakeven point. The breakeven point is where the business neither recieve a profit nor a loss, this is when total money recieved from sales is equal to total money spent to produce the items for sale.
Uses of a breakeven analysisBreakeven analysis enables a business organization to:
- Measure profit and loses at different levels of production and sales.
- To predict the effect of changes in price of sales.
- To analysis the relationship between fixed cost and variable cost.
- To predict the effect on profitablilty if changes in cost and efficiency.
Even though breakeven has these advantages or uses, there are also several demerits of break even analysis.
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