Break Even Chart.

Q79. What is Break Even Chart? What are its uses and limitations?
Ans. The break even chart graphical representation of cost volume profit relationship.

It shows the following:

  1. The profitability of the undertaking at different level of output.
  2.  Break Even Point ( BEP).
  3.  Relationship between marginal cost, fixed expenses and contribution.
  4. Margin of safety.

Uses of Break Even Chart:
Break Even chart can be used to show the effect of change in any of the factors on Profit namely- volume of sales, variable expense, fixed expense, selling price.

Limitation of Break Even Chart:

  1. Change in variable cost per unit due to operation of law of increasing return or decreasing return.
  2.  Change in selling price.
  3. Problem arises due to apportionment of fixed expenses when there are two or more products.
  4. It ignores capital employed.

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