Discussion
Assertion: automating a process raises the break-even point. Reason: it substitutes fixed cost for variable cost.
Answer: C
Correct answer: both the assertion and the reason are true and the reason explains the assertion
Both are true and the reason gives the mechanism. Automation buys a machine that must be paid for whether it runs or not and displaces labour that was charged per unit, so the fixed cost rises and the contribution per unit widens. Since the break-even quantity is fixed cost over contribution, the numerator usually rises faster than the denominator and the break-even volume goes up - while the profit beyond it grows more steeply than before.
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