Question

1. Critically evaluate the limitations of Break-Even Analysis

Answer 1

LIMITATIONS OF BEP ANALYSIS

1-The process of converting costs as fixed and variable is a difficult task

2-This break even analysis is completely avoid the capital employed in a business

3-Here there is an assumption that selling price remains constant for long period. but it is not a valid assumption

4- variable costs are those costs which directly vary according to production, here it is not always directly vary according to volume changes, this assumption is wrong

5- and fixed costs are those costs which remains fixed for any level of production, here also this assumption is wrong,because the fixed cost will remain only for a certain period.

6-when comes to break even charts, if there is no of products are manufactured ,then separate break even charts to be prepared

7-not possible to apply for a long period production planning

8-semi variable costs are completely avoid in break even analysis

9-it measures the relationship between cost,profit, volume of production at a given point of time. thus it is a static analysis