Break-even analysis is concerned with determining a point at which the company can minimize total cost and maximize total revenue. At that point, the company makes the highest profit. Select one: O True O False

Break-even analysis is concerned with determining a point at which the company can minimize total cost and maximize total revenue. At that point, the company makes the highest profit. Select one: O True O False

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 4Q: In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do...

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Break-even analysis is concerned with determining a
point at which the company can minimize total cost
and maximize total revenue. At that point, the
company makes the highest profit.
Select one:
O True
O False
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Break-Even Point AnalysisThe break-even point is usually expressed as the amount of revenue that must berealized for the firm (or product or activity or group of products or activities) to haveneither profit nor loss (that is, operating income equal to zero). The break-even pointis useful to managers because it expresses a minimum revenue target, and managersfrequently find it easier to think in terms of revenues rather than variable and fixedexpenses. In addition, the amount of sales (or revenues) generated by the firm is easilydetermined daily from the accounting system.The contribution margin model is used to determine the break-even point by setting operating income equal to zero and solving the model for the revenue or physicalsales volume that will cause that result. The calculation of break-even point in termsof units and total revenues is illustrated here:Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .…
“A customer-profitability profile highlights those customers a company should drop to improve profitability.” Do you agree? Explain.
The margin of safety can be defined as the amount by which sales can decrease beforelosses are incurred by the company.TRUEFALSE
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Focusing on target net income rather than operating income will increase the breakeven point. Select one: True O False
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If a firm's marginal revenue is smaller than its marginal cost, then the firm should collect additional information before taking any action. increase output to increase profit. keep output the same decrease output to increase profit.
A Cost-Volume-Profit graph contains an "Area of Loss" and an "Area ofProfitability". Which of the following best explains the difference between thetwo points on the graph? A. The area of loss represents the difference between Sales and Variable Cost.B. The area of loss begins with the concept that fixed costs have to be recovered priorto sales contributing to profit.C. The area of profit represents the difference between Sales and Variable Cost.D. The area of profit begins with the concept that no company would have any level ofsales below the break-even point.
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