Question

Read the passage carefully and answer the following questions- Besides the traditional techniques of budgetary control and standard costing, there are several other techniques of control that have been developed in modern times. Break-even analysis as a technique of control consists of the analysis of costs in relation to changes in the volume of sales and its impact on profit. It is basically concerned with determining the relationship between cost, volume of sales and profit. One of the major concerns of the management of an enterprise relates to the impact of changes in the volume of sales on profits. It is of interest to them to know the volume of sales at which costs will be fully covered and beyond which profits will be earned. For this purpose two types of costs are distinguished. Variable costs (like direct material costs, direct wages, etc.) and Fixed costs (like factory and office rent, managers’ salary, etc.). I f production and sales increase, variable cost per unit remains constant but fixed cost per unit declines.