COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Business decisions are made using current and actual figures for selling price and costs, which would help with changing the level of output and sales.
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The number of competitors in the market may change, so sales may not be as predicted.
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Variable costs may change, due to changes in the cost prices, so total costs would not be as predicted.
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If a promotional offer is made, then the selling price would be less than the figure used to calculate the break-even output.
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An increase in selling price may not lead to an increase in revenue.
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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: -While measuring break-even analysis, it is considered that during a specific period there will be no change in general price level, i.e., labor, cost of material and other overheads. 5. Which of the following are limitations of break-even analysis? b) Capital employed is taken into account.
Detailed explanation-3: -The break-even point does not change when sales change. It remains the point at which revenue covers variable and fixed costs without any profit or loss.