COST ACCOUNTING
FINANCIAL TERMINOLOGY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It enables the entrepreneur to calculate the margin of safety
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Selling prices may vary over time
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Economies of scale may be achieved as output increases
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The figures used are estimations
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Detailed explanation-1: -A breakeven chart is a chart that shows the sales volume level at which total costs equal sales. Losses will be incurred below this point, and profits will be earned above this point.
Detailed explanation-2: -Assume a company has $1 million in fixed costs and a gross margin of 37%. Its breakeven point is $2.7 million ($1 million ÷ 0.37). In this breakeven point example, the company must generate $2.7 million in revenue to cover its fixed and variable costs. If it generates more sales, the company will have a profit.
Detailed explanation-3: -The profit-volume graph focuses purely on showing a profit/ loss line and doesn’t separately show the cost and revenue lines. The break-even point of the product is the point where the line cuts the x axis, as the line crosses the x axis, profit will be made.
Detailed explanation-4: -All businesses have a break even point, that is a point at which the level of revenue is equal to the total expenses of the business, resulting in a zero profit.