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:
- The profitability of the undertaking at different level of output.
- Break Even Point ( BEP).
- Relationship between marginal cost, fixed expenses and contribution.
- 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:
- Change in variable cost per unit due to operation of law of increasing return or decreasing return.
- Change in selling price.
- Problem arises due to apportionment of fixed expenses when there are two or more products.
- It ignores capital employed.