Question

State any two points of utility of Break-even point.

Hint:

Break-even = Level of sales where total cost = total revenue. Useful for profit planning and cost control.

Answer 1

Step 1: Meaning of Break-even point.
Break-even point (BEP) is the point where the total cost of production equals total revenue.
At this point, the firm earns no profit and incurs no loss. It is also called the “no profit, no loss point.”
Step 2: Importance of BEP.
The break-even analysis is a very useful managerial tool for planning and decision-making.
It helps managers to understand the relationship between cost, sales volume, and profit.
Step 3: Two important utilities.
1. Helps in profit planning: BEP shows how much a business needs to sell in order to start earning profit.
This helps managers in setting sales targets and forecasting.
2. Assists in cost control: BEP analysis highlights the effect of fixed and variable costs.
It motivates managers to reduce costs in order to lower the break-even point.
Step 4: Conclusion.
Thus, the break-even point is an essential tool for determining the minimum sales requirement and ensuring profitability.