Which technique of managerial control determines the level of activity at which the firm can earn its target profits?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Breakeven Analysis
Option (1) Return on Investment — Incorrect. Return on investment checks whether the capital invested in the business is earning a good return.
Option (2) Budgetary Control — Incorrect. In budgetary control, all work is planned in advance in budgets, and actual results are compared with the budgets.
Option (3) Breakeven Analysis — Correct. Breakeven analysis studies the relationship between costs, volume and profits. It shows the profit or loss at different levels of activity. The sales level with no profit and no loss is the breakeven point. It helps a firm keep a close check on its variable costs and determines the level of activity at which the firm can earn its target profit.
Option (4) Ratio Analysis — Incorrect. Ratio analysis studies the relations between figures in the financial statements, such as liquidity and profitability ratios.
Note: The current NCERT book (2026-27) only names breakeven analysis as a technique of control. What breakeven analysis does is explained in the pre-rationalised NCERT, from which the extract below is taken. NCERT (Pre-rationalised Edition): “Breakeven Analysis Breakeven analysis is a technique used by managers to study the relationship between costs, volume and profits. It determines the probable profit and losses at different levels of activity. The sales volume at which there is no profit, no loss is known as breakeven point. …” “Budgetary Control Budgetary control is a technique of managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards. …”
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