State the assumptions that underlie the break-even analysis.

Management Accounting Block Revision Mock Exams

Assumptions underlying the break-even analysis:

(i) All costs can be broken down into their fixed and variable components with none remaining in the mixed cost category.
(ii) Fixed costs remain fixed within the relevant range
(iii) Selling price per unit is constant
(iv) The variable cost per unit is also constant
(v) Output level is the only factor affecting cost level
(vi) Changes in stock levels are not significant i.e. opening and closing stock levels remain relatively the same. All the units produced are therefore sold.
(vii) Technology remains the same.
(viii) The contribution sales ratio remains constant
(ix) Product mix remains the same.

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