Which is Break-even analysis used for?

• A. Break-even analysis predicts customer demand.
• B. Break-even analysis determines the optimal product price.
• C. Break-even analysis calculates net present value.
• D. Break-even analysis helps determine the level of sales needed to cover costs.

Answer: (D)

Break-even analysis focuses on how much you must sell to cover all costs. It separates costs into fixed costs that stay the same regardless of volume and variable costs that rise with each unit produced. The amount each unit adds to covering fixed costs is the contribution margin, which is price minus variable cost per unit. The break-even point in units is fixed costs divided by the contribution margin per unit (and in revenue terms, fixed costs divided by the contribution margin ratio). Reaching this point means total revenue equals total costs, so there’s no profit or loss. This tool helps set sales targets, evaluate how changes in price or costs affect profitability, and assess project viability. It isn’t used to forecast customer demand, nor to determine an optimal price by itself, and it doesn’t calculate net present value.