COST ACCOUNTING
BREAK EVEN POINT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Costs are unkown
|
|
|
the selling price may be too high
|
|
|
The business makes a loss
|
|
|
Too much stock held because not calculated how many to sell
|
Detailed explanation-1: -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. they can be time consuming to create.
Detailed explanation-2: -Break-even analysis is a simple calculation which can be used to diagnose the overall health of a company and to prescribe measures for improving it. It helps us to deal with uncertainty by identifying the critical value of sales at which the operation becomes profitable; this can help to focus market research.
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.
Detailed explanation-4: -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.