The Use of Break-even Point

1. Through break even point analysis, the management of a firm can:

a. know the total of profit or loss at each stage of production.

b. calculates the contribution of a product to cover the firm’s fixed costs.

c. calculate target volume and target profit. This means management can assess the amount of production needed to profit.

d. know the amount of investment needed to start production.

e. reduce fixed cost and variable cost per unit and then setting the selling price of a unit per unit which can guarantee the profit margin to the company.

f. plan and control budget by comparing the Break-even Point graph showing sales estimates, costs, profits, or losses with the actual graph.

g. know the effects of fixed costs, variable costs per unit, and the selling price per unit on break-even point.