Question

Which of the following is not a limitation of Break-even analysis?

• A. Technical stability
• B. Cost segregation
• C. Applicability of multi-product firm
• D. Change in selling price

Hint:

Break-even assumes constant cost, price, and product mix — technical issues are not part of it.

Answer 1

The Correct Option is A

Step 1: Meaning of break-even analysis.
Break-even analysis studies the relationship between cost, volume, and profit. It shows the point where no profit and no loss occurs.
Step 2: Limitations.
Common limitations include:
- Assumption of constant selling price.
- Assumption of single product or constant sales mix.
- Difficulty in cost segregation into fixed and variable.
Step 3: Option analysis.
- (A) Technical stability: Not related to break-even assumptions. Hence, not a limitation.
- (B) Cost segregation: Correctly a limitation, as segregation is difficult.
- (C) Multi-product applicability: Limitation, as BEA assumes single product.
- (D) Change in selling price: Limitation, BEA assumes constant price.
Step 4: Conclusion.
Technical stability is not a limitation of break-even analysis.