Question

In what situations could break-even analysis be used effectively?

What is the advantage of performing sensitivity analysis along with break-even analysis?

Answer 1

Break-even analysis is a business tool used to evaluate the business performance, which helps to determine the number of units that should be sold to meet the manufacturing costs or to make a particular amount of profit. The break-even analysis shows how the business will be successful in practice, and how worthy it is, so it must be done prior to starting a business. It is also helpful even after setting a business, especially regarding the price regulation or cost control.

It is advantageous to perform sensitivity analysis along with break-even analysis as it reduces the false sense of security while providing the necessary information wherever needed.