Source Based Questions - Business Arithmetic | Entrepreneurship Class 12 - Commerce PDF Download

Question. “Many entrepreneurs make the mistake of bringing a product or service to the market without fully understanding the total costs involved and the prices they can charge. As a result, they discover they can’t sell enough of the product or service to make a profit.

One of the most important tools you can use to make better business decisions is the break-even analysis; it enables you to determine with great accuracy whether or not your idea is a profitable one.
Best of all, you can use this tool to evaluate every product or service you offer.
A break-even analysis is a simple way to determine how much of the product must be sold to generate a specific level of profitability.”
Keeping in mind this article, state any five points indicating the importance of break-even analysis.

The calculation of BEP is quite useful for the entrepreneur as it helps in assessing :

1. The minimum level of output to be produced.
2. The effect of change in quantity of output upon the profits.
3. The selling price of the product.
4. The profitable options in line of production.
5. It helps in determining how many units must be sold or how much sales volume must be achieved in order to break–even.
6. It helps to indicate the volume of sales needed to cover total variable and fixed expenses by the new enterprise.