Break-Even Analysis in management
Break-even analysis is used as an important planning and controlling technique. Breakeven charts and break-even analysis have become widespread and known within no time and they are extensively employed by executives in organisations, investment agencies, labour unions, and government agencies. Break-even analysis has become useful in price determination and expense control in several organisations.
According to Joel Dean, “break analysis produces flexible projections of the impact of the output rate upon expenses receipts, and profits assuming other things equal. In this way; it provides an important bridge between business behaviour and theory of firm.
Most importantly, break-even analysis, also known as cost-volume-profit relationship, is designed to assist planning and decision making by predicting the net effect of change in cost, volume, price, and the level of activity on the profits of the company”.
According to 1CMA, London, “break-even analysis is the summary of the operating costs of the whole part of the activities of an undertaking for a specific period.
Breakeven chart is a convenient way of demonstrating the profitability or otherwise of an undertaking at various levels of activity. Incidentally, break-even point’ indicates the point at which the profit or loss to a firm is zero. It is also called no-profit-no loss point.