Assess the usefulness of a break-even analysis to a company

The break-even point is the point at which total revenue and total costs are the same. One reason why break-even analysis is very useful to a company is that it highlights the importance of keeping fixed costs as low as possible. The analysis forces firms to consider the effect of their fixed costs as a barrier to lowering total cost per unit. The lower the fixed cost, the less units the firm has to produce in order to cover all costs and break-even. The analysis could reveal that fixed costs are higher than expected, following this the company could take action to reduce those costs. Actions such as negotiating with the leasing charges for machinery or looking at capacity utilisation to make sure they are making the most of all resources would go along way to lowering fixed costs, therefore the break-even point moreover making the business more profitable.
Another reason why break-even analysis could be useful to a company is that the margin of safety calculation identifies how much sales can drop before a loss is made. This is a very important calculation for a production firm as it truly allows the management team to understand goal setting in terms of number of units to produce per day / week. The margin of safety calculation will allow the management team to take action to avoid a situation where the firm is taking losses.