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Break Even Analysis

Break-even analysis is a vital tool in business studies that visually represents output, profit, and loss. It illustrates the profit or loss at various output levels and identifies the necessary output to achieve specific profit targets. This analysis is simple and cost-effective, enabling businesses to predict the effects of price or cost changes and to support bank loan applications. However, it does come with limitations: it assumes all output is sold, cannot predict demand changes due to price shifts, and relies on the accuracy of the underlying data.

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Break Even Analysis

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  1. Break Even Analysis AS Business Studies Produc

  2. Benefits • Shows at a glance break-even output, profit and loss • Shows profit or loss made at different output levels • Shows output needed to meet profit targets • Simple and inexpensive to produce • Can show impact of changes to price or costs • Can be used to support bank loan applications

  3. Limitations • Assumes all output is sold • Cannot predict effect on demand when price is changed • Costs and prices are not constant over time • Only as accurate as the figures on which it is based

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