In this report, I’ll be evaluating the reliability of break-even analysis in estimating budgeted
activity for SportsActive
Break-even is an analysis to determine whether a business will cover all of its expenses in
order to gain profit. In simple words it’s when the business can make their revenue equal to
cost. Break even analysis is reliable as it is made from the budget and it gives a financial
structure to the business. The data used for breakeven, the business try to make the data as
accurate as possible. They make this data depending on the previous year’s financial report.
That’s why break-even is reliable to estimate current year’s results. In a short run, break-
even analysis can be accurate.
There are some limitations of break-even as well. For example, it cannot give accurate
results if the data used for it is predicted. Data such as change in direct cost or indirect cost
can have an impact on break-even analysis. This means that the results are going to be very
different from the actual result. So, in the long run break-even will not be reliable.
Furthermore, if the company is selling more than one product, it will become really hard for
the company to carry out breakeven analysis. This is because; all the different products are
going to have different prices meaning that the company will have to create different financial
accounts for each product they sell. The break-even analysis has to be different for each one
as well. Also, a change in the selling price is going to have huge effect on break-even
analysis. If the selling price changes, the whole financial data will change as well. If the total
revenue changes the total profit will change as well. This means that if the company relies
on break-even analysis, at the end of the year they will see a huge difference in their profit of
the business. Breakeven analysis shows a straight line for estimated income or cost. If the
cost or revenue changes for only one or two months and comes back to normal again, the
break-even analysis will not be able to show that. Either more than one break-even chart has
to be made or the analysis.
The beneficial side of break-even analysis is that it allows the business to know how much
they need to sell to be able to break even and start to make profit. This is less time being
wasted and it's easy to navigate and view for the business. Furthermore, there's a visual
representation of the graph of the break even, this will allow the business to navigate
through the graph and to see the changes and data being produced, and this can allow
businesses to create strategic decisions to change the data.
The main assumptions of the break even analysis for SportsActive is that the sales are
based on the prediction of the business and it may not happened and these are affected by
external factors which I’ll be explaining further on in this assignment. For example it says
that SportsActive needs to sell 10,000 trainers per year in order to break even that’s the
business prediction, however this may not be the case if the business are affected by
external factors such as the inflation and interest rates. Furthermore it can also be due to the
price of the products and stocks quantity.
The other main assumption of the break even analysis is that it ignores all the external
factors such as inflation and interest rates. These types of information are not presented in
the graph or data and these very both factors can affect the number of dishes the business
sells per month, therefore it cannot be seen and it can affect the business.
The last main assumptions of the break even analysis is that it assumes that all the goods
produced will be sold and this is not the case for SportsActive because they need to sell
activity for SportsActive
Break-even is an analysis to determine whether a business will cover all of its expenses in
order to gain profit. In simple words it’s when the business can make their revenue equal to
cost. Break even analysis is reliable as it is made from the budget and it gives a financial
structure to the business. The data used for breakeven, the business try to make the data as
accurate as possible. They make this data depending on the previous year’s financial report.
That’s why break-even is reliable to estimate current year’s results. In a short run, break-
even analysis can be accurate.
There are some limitations of break-even as well. For example, it cannot give accurate
results if the data used for it is predicted. Data such as change in direct cost or indirect cost
can have an impact on break-even analysis. This means that the results are going to be very
different from the actual result. So, in the long run break-even will not be reliable.
Furthermore, if the company is selling more than one product, it will become really hard for
the company to carry out breakeven analysis. This is because; all the different products are
going to have different prices meaning that the company will have to create different financial
accounts for each product they sell. The break-even analysis has to be different for each one
as well. Also, a change in the selling price is going to have huge effect on break-even
analysis. If the selling price changes, the whole financial data will change as well. If the total
revenue changes the total profit will change as well. This means that if the company relies
on break-even analysis, at the end of the year they will see a huge difference in their profit of
the business. Breakeven analysis shows a straight line for estimated income or cost. If the
cost or revenue changes for only one or two months and comes back to normal again, the
break-even analysis will not be able to show that. Either more than one break-even chart has
to be made or the analysis.
The beneficial side of break-even analysis is that it allows the business to know how much
they need to sell to be able to break even and start to make profit. This is less time being
wasted and it's easy to navigate and view for the business. Furthermore, there's a visual
representation of the graph of the break even, this will allow the business to navigate
through the graph and to see the changes and data being produced, and this can allow
businesses to create strategic decisions to change the data.
The main assumptions of the break even analysis for SportsActive is that the sales are
based on the prediction of the business and it may not happened and these are affected by
external factors which I’ll be explaining further on in this assignment. For example it says
that SportsActive needs to sell 10,000 trainers per year in order to break even that’s the
business prediction, however this may not be the case if the business are affected by
external factors such as the inflation and interest rates. Furthermore it can also be due to the
price of the products and stocks quantity.
The other main assumption of the break even analysis is that it ignores all the external
factors such as inflation and interest rates. These types of information are not presented in
the graph or data and these very both factors can affect the number of dishes the business
sells per month, therefore it cannot be seen and it can affect the business.
The last main assumptions of the break even analysis is that it assumes that all the goods
produced will be sold and this is not the case for SportsActive because they need to sell
