Documente Academic
Documente Profesional
Documente Cultură
Limitations:
The following limitations of break-even analysis have to be kept in
mind while making use of this tool:
1. Many costs and their components do not fall into neatly compartmentalized
fixed or variable cost categories as they possess the characteristics of both types.
2. If company sells several products, the financial manager has to prepare and
evaluate a number of profit-graphs covering integrated segments of independent
activities.
3. A break-even chart represents a short-run static relationship of costs and
output and become obsolete very quickly.
4. The relations indicated in the break-even chart do not help for all levels of
operations. Costs tend to be higher than shown on the static break-even chart
when the plants operation approaches 100 percent of its capacity.
5. The frequent changes happening in the selling price of the product affect the
reliability of the break even analysis.
6. The cost of securing funds to expand is disregarded in break-even chart.
In spite of the above mentioned limitations, the breakeven analysis has high place
in financial management.