COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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they cannot be used to calculate profit
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they cannot show the safety margin
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they are based on the assumption that all output is sold
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they are based on the assumption that the business makes a profit at all levels of output
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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: -However, break-even analysis does have some drawbacks: break-even assumes a business will sell all of the stock (of a particular product) at the same price. businesses can be unrealistic in their calculations. variable costs could change regularly, meaning the analysis could be inaccurate.
Detailed explanation-3: -Limitations of Break-Even Analysis: Break-even analysis is based on the assumption that all costs and expenses can be clearly separated into fixed and variable components. In practice, however, it may not be possible to achieve a clear-cut division of costs into fixed and variable types.
Detailed explanation-4: -Break-even analysis is based on three following assumptions:-1 The variable cost per unit is fixed production-oriented but undergoes a transformation proportionately in relation to a product. 2 All the elements of cost are divided into fixed or variable cost. 3 The stock valuation is restricted to a certain cost.