Limitations of Break Even

Limitations of Break Even

Limitations of break even analyses can be explained in term single product analyses, fixed cost assumption, unit sale price and variable cost assumptions. Limitations of break even analyses have been explained below

1.    Single Product Analyses

First limitation of break even analyses is its limited scope.  Break even analyses is a single product analyses. It holds well for a single product, it does not work even for two products. Therefore in modern business, where most industries are involved in producing more than one product, break even analyses cannot be used.

2.    Fixed Cost is not always fixed

Break even analyses assumes that fixed cost will remain fixed for all time, which is not the real world scenario. In practical business environment fixed cost remains unchanged up to certain limits, and then it take an upward jump. For example factory storage is not sufficient for all level of material; similarly more supervision is required for increased production level.

3.    Sale Price is not Constant

Break even another limitation is its wrong assumption of constant unit sale price. In practical business, it is not possible to keep the sale price constant. Demand rule says that for increased demand (sales), you need to decrease the price. Sales price is a changing phenomenon that is not recognized in break even analyses.

4.    Unit variable cost is not Constant

Break even analyses other important limitation is its assumption of constant unit variable cost . Again variable cost cannot be kept constant at all level. In increased production level it tends to fall due to economies of scale and in extreme production, it will rise again. (More supervision is required).


Limitation of Break even analyses are listed below

• It is a single product analyses.
• Its constant unit sales price assumption is not valid.
• Its constant variable price assumption is not correct in real business world.
• Its constant fixed cost assumption is also not valid.