What are the limitation of break even charts, Managerial Accounting

Assignment Help:

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.

 


Related Discussions:- What are the limitation of break even charts

Analysis of financial ratios, Analysis of Financial Ratios: Ratios are com...

Analysis of Financial Ratios: Ratios are computed to find out the customer's liquidity position and capability to repay debts. The computed ratios must be compared along with the

Cvp analysis and computer applications, CVP ANALYSIS AND COMPUTER APPLICATI...

CVP ANALYSIS AND COMPUTER APPLICATIONS The output from a CVP model is only as good as the input. The analysis will include assumptions about sales mix, production efficiency, p

Feed-forward control system, Feed-forward control system Feed-forward c...

Feed-forward control system Feed-forward control system describes a system in which deviations in the system are anticipated in a forecast of future results, so that corrective

Cost of carry model, Suppose the spot price for Euro is $1.30, the futures ...

Suppose the spot price for Euro is $1.30, the futures price for delivery in 6 months is $ 1.29675. Assume that the 6 month borrowing/lending rate in Euro is 1.5 percent (annually,

Break even analysis, BREAK EVEN ANALYSIS Break even analysis is mainly us...

BREAK EVEN ANALYSIS Break even analysis is mainly used to explain the relationship between the cost incurred, the volume operated at and the profit earned. To compute the breakev

Financial statement, how to i get financial report for my company Anuz Wpp

how to i get financial report for my company Anuz Wpp

Case study, Do you think the food industry in general has equivocated on fo...

Do you think the food industry in general has equivocated on food labeling? Are all foods labeled natural in the same way? Has modern society subverted the concept of nature?

Cost classification, identify and explain cost classification for performan...

identify and explain cost classification for performance evaluation

The break even point in dollorsales for rice company, the break even point ...

the break even point in dollorsales for rice company is48,000 and the company's contribution margin ratio is 40 percent. If Rice Company desires a profit of $84,000, how much wou

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd