Case Study = =

The breakeven point for a firm is when total costs equals total revenue. Expenditure and income are the same and the firm makes neither a profit or a loss. If the firm can sell at production levels above this point, it will be making a profit. If sales fall below this point, it will be making a loss. Establishing the breakeven point helps a firm to plan the levels of production it needs to be profitable. Break even analysis can also be used to analyse the potential profitability of an expenditure in a sales-based business.

But in this case, the experience of Nick Hess and Doodeaze show that break-even analysis is of little value to an entrepreneur starting a new business, Foodeaze ceased operations due to mounting losses after opening of a new atore nearby selling similar products. So, there must be some drawbacks about break-even analysis, suck as everything produced is sold whereas it is often the case that not all output will be sold; It assumes that all of the output is sold at the same price - often a business will have to lower its price in order to increase its sales; There are competitors that may lead to sales falling but break-even analysis can't forecast it. There are also some limitations such as it never consider tax or some others.

When sart a business, break-even could be helpful, but entrepreneur can't make all decisions just by a result from the calculation.