1. A company makes and sells a single product. If the fixed cost incurred in making and selling
product increase :
a) The breakeven point will increase
(b) The breakeven point will decrease
(c) The breakeven point will remain the same
(d) Neither (a) nor (b) nor (c)
mente about the profit - volume graph are true
Answers
Answer:
A break-even analysis is a financial tool which helps a company to determine the stage at which the company, or a new service or a product, will be profitable. In other words, it is a financial calculation for determining the number of products or services a company should sell or provide to cover its costs (particularly fixed costs).
Table of contents
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What is a Break-Even Analysis
Components of Break-Even Analysis
Calculation of Break-Even Analysis
Contribution Margin
When is Break-even analysis used
Breakeven analysis is useful for the following reasons:
Ways to monitor Break-even point
Benefits of Break-even analysis
Explanation:
Components of Break-Even Analysis
Fixed costs
Fixed costs are also called overhead costs. These overhead costs occur after the decision to start an economic activity is taken and these costs are directly related to the level of production, but not the quantity of production. Fixed costs include (but are not limited to) interest, taxes, salaries, rent, depreciation costs, labour costs, energy costs etc. These costs are fixed irrespective of the production. In case of no production also the costs must be incurred.
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"The breakeven point will increase." Thus, the answer to this question will be option A.
- The breakeven point is the point when total revenue and total costs are equal.
- It is called the point when a company breaks even and all the earnings after it will become profits. Thus, it is the point after which a company starts making a profit.
- Fixed costs also called overhead costs are the costs that are unrelated to the number of goods or services produced by a company.
- So, when the fixed costs of a company increase, the total costs of the company also increase.
- Hence, when the fixed costs increase, the breakeven point of the company will increase. Since the total cost has also increased and the breakeven point is when total revenue = total costs.
- Hence, the breakeven point will increase if the fixed cost incurred in making and selling a product increases.
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