Although, break-even analysis is a very useful risk assessment technique and a useful device for testing the sensitivities of business performance, the following limitations must be considered:
1. All costs resolved into
fixed or variable
2. Variable costs fluctuate in direct proportion to volume.
3. Fixed costs remain constant over the volume range.
4. The selling price per unit is constant over the entire volume range.
5. The company sells
only one product, or mix of products tends to remain
constant.
6. Volumetric increase is the only factor affecting costs.
7. The efficiency in the use of resources will remain constant over the period.