In: Economics
Break even analysis actually gives the idea that how much output you need to produce so that you do not face any loss. It gives the idea how much time or how much output you need to produce to cover up your fixed cost. (P - MC) is the contribution margin i.e price per unit how much higher than marginal cost and how long or how much output it needs to produce to cover up the fixed cost. If fixed cost is higher then breakeven output will be also higher.
The goal of break even analysis is how you do feasibility of any project. Through break even analysis one can easily calculate that how much sales it needs to make the profit. The level of output and optimum minimum level of output through which investor can not make loss. It is a output which actually helps to cover fixed cost and after this output level price per unit is higher than average variable cost the investor will start to make profit.
The main limitation of breakeven analysis is that it assumes price is fixed for every unit it solds but it is very unrealistic assumption that every unit will be sold at same price. There is another thing that variable cost can also vary with more output and less output. It is also kind of unrealistic that variable cost per unit will be same. There is another side that thorough breakeven we can do only the no profit no loss situation but if we decide any target profit level then it is difficult to calculate. If software company also makes some other product with this final software product then also it is difficult to breakeven output because more than one kind of output it is producing.