understanding costs, what are advantages and disadvantages of break-even analysis in themanagerial decision making?

Expert Solution

Answer:	The advantage of break-even analysis in managerial decision making

	It shows the level of profit at a given level of output and helps to set targets for achieving profit.
	It helps to analyze the relationship between fixed and variable cost.
	Break-even chart are to make and BEP is easy to calculate.
	It can help management to assist if new machine should be purchased or more fixed cost can be incurred.

	The disadvantage of break-even analysis in managerial decision making

	It assumes that sales price and and cost are constant at all level of output which may not be certainly accurate.
	All cost cannot be classified into fixed or variable as may be some semi-variable cost also. In that case it becomes difficult to calculate break-even point.
	It is helpful in case of single product or single product mix. In case of multi-products it could difficult to allocate fixed cost and to calculate BEP may be difficult
	Even the production and sales volume may not be same in all cases.

ekkarill92 answered 1 year ago

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