ACCA Performance Management (F5) Certification Practice Exam

What is one of the assumptions of break-even analysis related to selling price?

1. Selling price can fluctuate

2. Selling price remains unchanged

3. Selling price is not considered

4. Selling price must cover all costs

The correct answer is: Selling price remains unchanged

In break-even analysis, one of the key assumptions is that the selling price remains unchanged throughout the analysis period. This assumption simplifies the calculation of the break-even point, allowing for clear insights into how many units must be sold at a constant price to cover total costs. By holding the selling price constant, it becomes easier to assess the relationship between fixed costs, variable costs, and sales volume without the complicating factor of price fluctuations. This assumption helps businesses understand their cost structure and the minimum sales volume needed to avoid losses, thus providing a clear target for management and sales strategies. The stability of the selling price is critical for accurately determining profitability at various levels of output.