Limitations of Break-Even Analysis:

Limitations of Break-Even Analysis:

1. The assumption that all costs and revenues are represented by straight lines in unrealistic.
2. Not all costs can be conveniently classified into fixed and variable costs. The introduction of semi-variable costs will make the technique more complicated.
3. There is no allowance made for stock levels on the break-even chart. It is assumed that all units produced are sold. This is unlikely to always be the case in practice.
4. It is also unlikely that fixed costs will remain unchanged at different output levels up to a maximum capacity.

Benefits of Break-Even Analysis:

Benefits of Break-Even Analysis:

1. Charts are relatively easy to construct and interpret.
2. It provides useful guidelines to management on break-even points, safety margins and profit/loss levels at different rates of output.
3. Comparisons can be made between different options by constructing new charts to show changed circumstances.
4. The equation produces a precise break-even result.
5. Break-even analysis can be used to assist managers when taking important decisions, such as location decisions, whether to buy new equipment and which project to invest in.