POINTS TO REMEMBER
  1. What is break-even analysis? Why is it significant?
    • Break-even analysis deals with the determination of the output size that can be had with zero profit.
    • It is an important tool for profit planning.
    • It helps in make/buy decisions.
    • It is useful in decisions regarding replacement of machine.
  2. How is break-even point determined?
    • It lies at a point where the sum of fixed and variable costs = revenue from sale or in other words,

       

      Q = FC/(P – VC)

     

  3. In which circumstances, does BEP change?
    • Increase/decrease in volume of sales
    • Increase/decrease in sale price
    • Increase/decrease in fixed cost
    • Increase/decrease in variable cost
  4. Can sales be planned to earn a desired profit?
    • Yes. Planned sales = (FC + desired profit)/MC%

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