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Limitations of break-even chart

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Rakesh Sahu asked over 2 years ago

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered over 2 years ago

The following are the limitations of breakeven chart : It is not always possible to predict what will happen to revenues or costs as output increases. It is only a forecast so in reality the figures can vary greatly. the business would need to take heed to the cost of financial accounting and the rate at which the value for money can change. It also assumes that all products produced will have completed the whole production stage and be sold. Again, in reality, many businesses would still have stock in working progress and unsold stock; thus not showing a true representation of the data. Sometimes it can be that the costs incurred by making and selling the product can vary so many managers find that classifying them as either fixed or variable can prove problematic. The frequent changes happening in the selling price of the product affect the reliability of the break even analysis. The cost of securing funds to expand is disregarded in break-even chart.

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Data?1494421730 rohit awasthi answered over 2 years ago

Dear Friend > Limitations of break-even chart 1. The variable cost line need not necessarily be a straight line because of the possibility of operation of law of increasing returns or decreasing returns. 2. Similarly the selling price will not be a constant factor. Any increase or decrease in output is likely to have all influence on the selling price. 3. When a number of products are produced separate break-even charts will have to be calculated. This poses a problem of apportionment of fixed expenses to each product. 4. Break-even charts ignore the capital employed in business, which is one of the important guiding factors the determination of profitability. Thanks

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