Critically Appraise the Use of Break-Even Analysis when Used in a Company with a Number of Different Products
Break-even analysis is a management tool which supports planning and decision making by clarifying the effects of change in output and selling price on profitability. It illustrates the relationship between output, sales revenue, variable and fixed costs and profit. A business breaks even when contribution (sales - variable costs = contribution) equals fixed costs, meaning all costs are covered, neither a profit nor loss is being made. A company can use the break-even analysis also for calculating a pre-determined profit/turnover or for the decision whether to accept an additional order or not.
Usually the break-even point is calculated by dividing fixed costs by contribution getting break even units. …
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