THE REALITIES ABOUT POULTRY The Modern Farm - The Realities About Poultry_Seco | Page 161

Cons (Limitations) of Break-even analysis
To keep break-even analysis simple, a number of assumptions are made that are unrealistic. For
example, it is assumed that:

All the output is also sold. Break-even analysis cannot cope with items that are produced but not
sold.

The total revenue and variable costs lines are linear (that is, they increase at a constant rate). In
reality, both selling price and the variable costs per unit will change as output increases.
Economies of scale, such as bulk buying discounts, are likely to mean that variable costs per unit
will fall at higher levels of output.
The analysis is intended to help predict the effect of changes, such as selling price. It says
nothing about the effect that such a change may have on customer demand and hence on the
actual level of profit or loss. This will depend on the price elasticity of demand, which is not
considered in the break-even chart.
The constant changing nature of costs and prices in the real world means that a break-even chart
is unlikely to remain valid for very long.
Finally, it is worth noting that any information gained from break-even charts or calculations is
only as accurate as the information it was based upon. Collecting accurate information is
expensive and time-consuming and often difficult for inexperienced poultry farmers.
Sources of Finance to Run a Poultry Farm
Finance is the lifeblood of business concern, because it is interlinked with all activities performed by
the business concern. In a human body, if blood circulation is not proper, body function will stop.
Similarly, if the finance is not be