Question

Khalifa wants to expand his business further. He needs to know if he will make enough profit over the next six months. To do so, Khalid has suggested calculating his breakeven point, and his profit. Khalifa will need 100,000 AED to expand his business.

2a. Evaluate why it is a good idea for Khalifa to calculate his breakeven point.

Answer 1

It is a good idea for Khalifa to calculate his breakeven point because the breakeven point will tell him at which point his sales revenue will cover his costs, giving him a profit of exactly zero.

In other words, once the breakeven point is reached, any additional sales will become profit for Khalifa, because the costs of the company will have already been covered.

The breakeven point is one of the most important financial measures, as for this reason, all firms should calculate it, whether small or large.