Break Even Analysis is no doubt a great tool to analyse the performance of the products but there are several limitations attached with it. These are:
- It is applicable to companies which are selling either one product or selling more than one product in a consistent ratio like 1:2, 1:3 and so on.
- It assumes that the selling price remains constant, however, in reality the price of the product changes due to counter moves from competitors.
- It completely ignores factors such as inflation and interest rates.The entire focus of this model is on production level.
- It assumed the fixed cost remain the same and variable cost always follow the same pattern. However, in reality suppliers and vendors do change their prices and this makes the Break Even Model invalid for analysis.