Page 248 - BA2 Integrated Workbook STUDENT 2018

Chapter 13

Limitations of CVP analysis

The limitations of the practical applicability of breakeven analysis and breakeven
charts stem mostly from the assumptions which underlie the analysis:

 Costs are assumed to behave in a linear fashion.

 Sales revenues are assumed to be constant for each unit sold.

 It is assumed that activity is the only factor affecting costs, and factors
such as inflation are ignored.

 The charts can only really be applied to a single product or service.

 The analysis seems to suggest that as long as the activity level is above
the breakeven point, then a profit will be achieved.

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