Advantages and disadvantages of break even

• Advantages of break-even analysis

  • It's easy to do
  • It's quick-managers can see the break-even output and margin of safety immediately so they can take quick action
  • Break-even charts let businesses forecast how variations in sales will affect costs, revenue and profits
  • Businesses can use break-even analysis to help persuade sources of finance to give them money
  • Break-even analysis influences decisions on whether new products are launched or not
• Disadvantages of break-even analysis

  • Break-even analysis assumes that variable costs always rise steadily, which isn't always the case
  • Break-even analysis is simple for a single product, but most businesses sell lots of different products, so looking at the business as a whole can get a lot more complicated
  • If the data is inaccurate, then the results will be wrong
• Con-Break-even analysis assumes the business sells all the products, without any wastage, but in reality there may be some wastage (e.g. in a restaurant business)
• Con-Break-even analysis only tells you how many units you need to sell to break even, it doesn't tell you how many you're actually going to sell