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CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions

Which of the following is an assumption of break-even analysis?

Variable cost per unit is assumed to remain constant at all levels of activity. Break-even analysis also assumes constant selling price, fixed cost constant in total within the relevant range, and an unchanged sales mix.

  1. ASelling price per unit varies with volume
  2. BFixed cost per unit remains constant at all levels
  3. CVariable cost per unit remains constant at all levels of activityCorrect
  4. DSales mix changes at every level of output

Explanation

Break-even analysis assumes a constant selling price, constant variable cost per unit, fixed cost constant in total over the relevant range, and a constant sales mix. Fixed cost per unit varies with volume, so option B is wrong.

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