Discussion
Break-even analysis also assumes that production and sales volumes are
Answer: A
Correct answer: equal, with no change in stock
The analysis charts revenue and cost against a single quantity, which requires that everything produced is sold. If production exceeds sales, some fixed cost is carried forward in the value of the stock rather than charged against the period, and the profit reported differs from what the break-even chart shows. That divergence between marginal and absorption costing is one of the standard limitations of the method.
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