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- The Break-Even Point (BEP) is based on some assumptions, such as sales price, costs, production, sales, etc. The technique will be only of financial value unless all these assumptions are well calculated. Besides, the technique is a preliminary and supplementary tool in the whole exercise of ratio analysis.
- The technique is to provide cost-escalation as built-in safeguard against increase in prices.
- The proper analysis of various costs into fixed costs and variable costs is very important. This is so because; some of the items will neither fall under fixed costs nor under variable costs. Hence, semi-variable costs may cast its effect on the BEP. BEP may not prove useful to rapidly growing enterprises and to enterprises that frequently change their product mix.
- It has limited utility in case of multi products.
- It does not due cognizance of factors like uncertainty and risk involved in estimates for costs, volume and profits.
- It is not a patent toll for long Range Planning.
However, it is an important tool for the profitability analysis of the new projects.
