COST ACCOUNTING
BREAK EVEN POINT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Banks don’t like to see break even analysis
|
|
|
It may be difficult to obtain accurate data to accurately predict break even point
|
|
|
The margin of safety is very difficult and time consuming to calculate
|
|
|
Only experts can understand a break even chart
|
Detailed explanation-1: -Some Limitations of Break-even analysis Assuming that the selling price remains constant results in a straight revenue line, which may or may not be accurate. The selling price of a product is determined by a variety of factors such as market demand and supply, competition, and so on, and it seldom remains constant.
Detailed explanation-2: -It’s important to note that a break-even analysis is not a predictor of demand. It won’t tell you what your sales are going to be, or how many people will want what you’re selling. It will only tell you the amount of sales you need to make to operate profitably.
Detailed explanation-3: -Which of the following is a limitation of break-even analysis? It does not give an estimate of how much profit can be earned once the break-even point is obtained. Sometimes it cannot predict the effect of changes in sales price. It does not give weightage to the cost of labor that is incurred during production.