Breakeven analysis is the analysis of income, cost and profit structures with particular reference to the breakeven point, to show the effect on breakeven point of charges in income and costs. The breakeven point is that level of sales at which neither profit nor loss is made; it is the lowest point at which fixed costs are fully recovered, The margin of safety is the difference between budgeted output and the breakeven point.
If the actual level of profit or the preliminary budgeted level is below the required level, a study is made of the factors responsible for the discrepancy and of the measures needed to rectify the position. Breakeven Analysis is useful at both stages, i.e. both for showing the effects of any policy changes on any of the controlling variables - Research Projections.
It is useful in dynamic situations in which there may be:
to consider optimising the options available to a business enterprise by investing in some breakeven analysis to better inform strategic decision making.