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This post addresses break-even analysis and sales.

(a) Break-even analysis is of limited use to management because a company cannot survive by just breaking even. Do you agree? Explain.

(b) Total fixed costs are $22,000 for Forrest Inc. It has a contribution margin per unit of $15, and a contribution margin ratio of 25%. Compute the break-even sales in dollars.

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(a) No, we definitely don't agree!

It is true that break-even analysis shows management the exact point where the company will break even -- where profit is exactly at zero. This is of great use to management, because it shows exactly what it is designed to show. By showing management where the company breaks even at zero, management can then determine from that ...

Solution Summary

The solution explains the comment, Break-even analysis is of limited use to management because a company cannot survive by just breaking even. The solution also computes the break-even sales in dollars for the problem given.

$2.19