ECONOMICS

COST ACCOUNTING

BREAK EVEN POINT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
At zero output on a break even diagram, the total cost line will always start:
A
At zero on both axes
B
Where the variable cost line starts
C
Where the fixed cost line starts
D
Where the total revenue line starts
Explanation: 

Detailed explanation-1: -When the output is zero, only the variable cost will reduce to zero. The fixed cost will remain the same. Hence, the total cost will be equal to the fixed cost.

Detailed explanation-2: -Fixed costs are always shown as the vertical intercept of the total cost curve; they are the costs incurred when output is zero, so there are no variable costs. You can see in the graph that once production starts, total costs and variable costs rise.

Detailed explanation-3: -Creating a break even graph You plot a straight horizontal line of fixed costs across the graph, as these don’t change with the number of units produced. Then you plot a line for variable costs, starting at the point fixed costs start. This line represents total costs.

Detailed explanation-4: -Onto this, plot a horizontal fixed costs line-it is horizontal because fixed costs don’t change with output. Then plot a line to represent variable cost starting at the same point as the fixed costs line.

There is 1 question to complete.