What is the primary use of break-even analysis?

The primary use of break-even analysis is to identify the level of sales needed to cover costs. This analysis helps businesses determine the point at which total revenues equal total costs, meaning there is neither profit nor loss. By calculating the break-even point, companies can assess how many units they need to sell before they start making a profit. This is crucial for making informed decisions regarding pricing, production levels, and market strategies.

Understanding the break-even point enables managers to evaluate the financial viability of a product or project and safeguards against potential losses, ensuring that the business remains sustainable. It serves as a foundational concept in cost and managerial accounting, guiding operational and financial decisions within an organization.