Assumptions of BEP Analysis

1.    Relevance range — it is assumed that a company is operating within a relevant range. The relevant range is the range of an activity over which the fixed cost will remain fixed in total and the variable cost per unit will remain constant.

2.    Fixed costs — Total fixed costs are assumed to be constant in total. Fixed costs per unit will decrease with the increasing number of units produced.

3.    Variable costs — Variable costs per unit are assumed to be constant.

4.    Total variable costs will increase with the increasing number of units produced. Sales revenue ---Sales revenue per unit is assumed to be constant and the total revenue will increase with the increasing number of units produced.