Business Studies – 4.4.3 Break-even analysis | e-Consult

Besides the constant selling price assumption, two further limitations to consider are:

• Accuracy of cost estimates: Break-even analysis relies on accurate estimates of both fixed and variable costs. If these estimates are inaccurate (e.g., underestimated variable costs), the break-even point will be wrong, leading to poor decisions.
• Time element: Break-even analysis is a snapshot in time. It doesn't account for changes in costs or prices over time. For example, utility costs might increase in the future, affecting profitability. A break-even analysis based on current costs may not be relevant in the long term.