Break Even Analysis
Break Even Analysis
Advantages
Relatively simple concept and the formula
can be understood and used by most
entrepreneurs
The info provided can  be vital when taking a
decision whether to go ahead with a business
proposal
It is widely use to support applications from
entrepreneurs for loans
It can be quickly adapted to allow for many
'what if' situations to be considered and
compared. This reinforces the usefulness of
the technique for decision-making
Evaluation
Disadvantages
It assumes that all output produced is sold
It oversimplifies business situations
Many firms sell more than one product
fixed costs are rarely completely fixed over a
wide range of output and variable costs
could vary with bulk discounts as the business
expands
Misleading or inaccurate data leads to
incorrect break-even analysis
A break even analysis does not show what
will definitely happen.