What are the limitation of break even charts, Managerial Accounting

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Limitation of break even charts

Despite many advantages a break even chart suffers from the following limitations:

1) A break even chart is based upon a number of assumption discussed above which may not hold good under all circumstances. For example fixed costs do not remain constant after a certain level of activity variable costs do not always vary in direct proportion to changes in the volume of output because of the laws of diminishing and increasing returns ; selling prices do not remain the same forever and for all level of output due competition and changes in the general price level; etc.

2) A break even chart provides only a limited information. We have to draw a number of charts to study the effects of changes in the fixed costs variable costs and selling price on the profitability.

3) Break even charts present only cost volume profit relationships but ignore other important consideration such as the amount of capital investment marketing problems and government policies etc.

4) A break even chart does not suggest any action or remedies to the management as a tool of management decisions

5) Moiré often a break even chart presents only a static view of the problem under consideration.

 


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