Question

Which condition would result in invalidating and application of break-even analysis?

1. The variable cost to produce a unit is within one percent of sale price

2. The purchasing department both offera quantity discounts to customers ans receives quantity discounts from suppliers

3. The variable cost to produce a unit is less that one percent of the fixed cost to run the plant

Answer 1

Answer: 2

As we know break even analysis is used, to know the quantity of products to be sold to increase the profitability of the firm. In this case the purchase department received quantity discount and also gave quantity discount to the customer therefore no extra revenue generating to cover the fixed cost. Break even analysis cannot be applied.