COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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if we sell 55 we aren’t making a profit
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if we sell 54 we begin to make a profit
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if we sell 55 we begin to make a profit
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if we sell 54 we are not yet at break even point
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Detailed explanation-1: -The break-even analysis uses three assumptions to determine a break-even point: fixed costs, variable costs, and unit price. Fixed costs and variable costs are both included in this glossary, and unit price is the average revenue per unit of sales.
Detailed explanation-2: -The break-even analysis is based on the following set of assumptions: (i) The total costs may be classified into fixed and variable costs. It ignores semi-variable cost. (ii) The cost and revenue functions remain linear. (iii) The price of the product is assumed to be constant.
Detailed explanation-3: -Break-even point in units = Fixed costs ÷ Contribution margin per unit. Your break-even point in units will tell you exactly how many units you need to sell to turn a profit. If you’re able to sell more units beyond this point, you’ll be making a profit.
Detailed explanation-4: -Break-even Sales = Total Fixed Costs / (Contribution Margin) Contribution Margin = 1-(Variable Costs / Revenues)