Limitations of break even analysis ppt
Break-Even Analysis Costs/Revenue Output/Sales FC VC TCTR (p = Rs. 2) Q1 Q2 Margin of Safety Margin of safety shows how far sales can fall before losses made. If Q1 = 1000 and Q2 = 1800, sales could fall by 800 units before a loss would be made TR (p = Rs. 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. Limitations of breakeven analysis Unrealistic assumptions – products are not sold at the same price at different levels of output; fixed costs do vary when output changes Sales are unlikely to be the same as output – there may be some build up of stocks or wasted output too