BREAK EVENT ANALYSIS

  • 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

  1. It serves as the most useful and important managerial tool to study cost-output-profit relationship at varying levels of output
  2. It is useful in reviewing pricing policies.
  3. It aids in planning capitalization of the enterprise
  4. It provides the entrepreneur to decide whether to acquire or not assets involving additional fixed costs.

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