- determine the level of sales needed to recover costs associated with output of a good or service
Limitations
- prices are assumed to be constant. Many businesses offer price discounts to people who buy in bulk
- costs are assumed to be constant. Not true (think of economies of scale!)
- Changes in external business environment will impact costs and revenue
- BEA is ideal for firms that sell a single good or service. Hard to calculate BEA for multiple products
- Relies on accuracy of cost and revenue data to make predictions. Mistakes/inaccuracies create bias which could invalidate the results
- Ignores qualitative considerations