Question

Discuss the major difference between linear and non-linear break-even analysis.

Answer 1

Linear break even analysis involves linear cost and revenue structure, whereas non-linear break even analysis has to deal with the non-linear cost and revenue function. It happens, because variable cost may decrease with increase in output level. Further, linear break even analysis involves one break even point, but non-linear break even analysis has two break even point. In the linear analysis, profit is earned when the volume above the break even units are sold. But, it is different in case of non-linear break even analysis. In this case, profit is earned between the two break even units or volume. Below or above these two points, there will be losses. So, it is bit complex in comparison to the linear analysis.