COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It allows the business to set a margin of safety
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It allows the business to stock profitable goods
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Costs of stock or materials may be too high and go unnoticed
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None
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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: -Ignores competition – Another limitation of a break-even analysis concerns the fact that competitors aren’t factored into the equation. New entrants to the market could affect demand for your products or cause you to change your prices, which is likely to affect your break-even point.
Detailed explanation-3: -A break-even analysis is a financial calculation that weighs the costs of a new business, service or product against the unit sell price to determine the point at which you will break even. In other words, it reveals the point at which you will have sold enough units to cover all of your costs.
Detailed explanation-4: -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.