One limitation of break-even analysis.

• A. It ignores fixed costs.
• B. It never uses revenue data.
• C. It assumes costs and selling prices stay constant, but these can change.
• D. It automatically calculates profit.

Answer: (C)

Break-even analysis shows how many units must be sold to cover all costs, by matching total revenue against total costs based on per-unit variable costs and fixed costs. The key limitation is that it assumes selling prices and costs per unit stay constant. In the real world, prices can change due to competition, demand, or inflation, and costs can shift with supplier prices or changes in volume. If either price or cost changes, the break-even point moves, so the analysis can become unreliable unless you update the assumptions.

This method does include fixed costs, and it uses revenue data to determine the break-even point, so those aspects aren’t limitations. It also doesn’t automatically produce profits; it shows where profit is zero, and any quantity beyond that point would yield profit only if prices and costs remain favorable.