The break even point for a business is when the total revenue equals total costs. Break even graphs can be used to show total costs and total revenue; the point where the two lines cross is the break even point.
Break even analysis shows the level of sales that are needed to break even. It can also be used to investigate the impact of a price change or be presented to the bank with request for a loan.
Break even graphs can also be used to show the margin of safety. That is the amount by which demand can drop before the company makes losses.
There are some disadvantages of using a break even chart / graph:
It doesn't always account for changes.
Assumes that everything made is sold and that no stock is held.
It is dependent on accurate data.
Assumes that total cost and total revenue are straight lines (no bulk buying etc).
