Discuss the various uses for break-even analysis.

Short Answer

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Break-even analysis helps in determining the selling price for achieiving the desired gain, fixing the sales volume to cover the return on capital employed and also helps in forecasting the cost or profits required to be achieved in the project.

Step by step solution

01

Break-even analysis

Break even analysis is conducted by the management of the company to know point at which the cash outflow of the project is equal to the present value of cash inflow.

02

Uses of break-even analysis

  1. The break-even analysis helps the management in fixing the selling price at which the company earns profits.
  2. It determines the quantity to be sold for achieving the company’s objective.
  3. It gives suggestions for shift in sales mix.
  4. It helps in comparing the inter-firm profitability.

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