break even analysis Flashcards
(3 cards)
1
Q
what are the advantages
A
-minimum sales requirements:clarifies the minimum sales needed to avoid losses
-identifies the margin of safety:how much salesman fall before making a loss, useful for risk assessment
2
Q
what are the disadvantages
A
-assumes a constant selling price:ignores discounts, seasonal prices and changes in demand
-ignores external factors:e.g new regulations, economic conditions e.g inflation or interest rates can reduce consumers willingness to pay reducing sales units
3
Q
what is the definition of break even analysis
A
a financial tool that helps businesses determine the sales volume or revenue needed to cover all costs
