ASSUMPTIONS OF BREAK EVEN ANALYSIS
The following are the important assumptions of Break Even Analysis:
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All the costs can be bifurcated into fixed and variable cost.
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Fixed cost remains constant and does not change with the increase or decrease of output.
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Variable costs fluctuate directly with changes in the volume of output. In other words, they change in the same proportion in which the output varies i.e., if output increases it increases and if output decreases then the variable cost also decreases.
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Selling price remains constant for any change in the volume of the production.
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As the number of units produced and sold are same, there is no opening and closing stock.
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There is only one product or in case of multi-products the sales mix or product mix remains constant.
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The cost and revenue depends on only volume.
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Operating efficiency remains constant.
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