- The determination of break even point of a firm is an important factor in assessing its profitability. It depicts the relation between total cost and total revenue at the level of particular output.
- Break even point is an important measure being used by the proponents and banks in deciding the viability of a new project in respect of manufacturing activities.
- The break even point establishes the level of output which evenly breaks the costs and revenues.
Utility of BEP
- It serves as the most useful and important managerial tool to study cost-output-profit relationship at varying levels of output
- It is useful in reviewing pricing policies.
- It aids in planning capitalization of the enterprise
- It provides the entrepreneur to decide whether to acquire or not assets involving additional fixed costs.