Break-even-analysis is a dominant investigative tool, which uses easy graphical method to evaluate few feasible alternatives. It is helpful for deducing cost/revenue connection with respect to product volume. We can easily determine through break-even analysis that what level of production volume will be the profit from the production systems will be maximum. The break-even chart is drawn in order to compute this.  

But in general the break-even analysis is not taken as the effective approach. In case of period of payback the analysis is mistaken. Moreover it also takes time for recovering of an investment. In technical terms, a break-even analysis gives out to describe the fixed costs as those costs that would still persist even if it is wanted by an analyst to break.

Purpose of Break-Even Analysis

·        Break-Even Analysis is helpful in establishing the crucial level of operation above which the profit is made by the organization and below which organization will have losses.

·        The process selected for a production volume can also be identified.

·        The analysis helps in taking decisions related to buying or manufacturing of a product.

·        The analysis helps in taking decisions related to product mix.   

·        The analysis also helps in identifying the effect on the profitability due to the increase in variable cost.

·        The analysis also helps in identifying the effect of increase in capacity of a firm.

 

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