The Term 'Relevant Range', as Used in Break-Even Analysis, Means

question 27

Multiple Choice

The term 'relevant range', as used in break-even analysis, means the range:

• A) over which costs are relevant.
• B) over which the firm has a margin of safety.
• C) where the firm will break even.
• D) of activity within which an entity would normally operate.

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Definitions:

Contribution Margin Ratio

The percentage of each sale that remains after variable costs are deducted, indicating how much revenue is contributing to fixed costs and profit.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in sales, reflecting the proportion of fixed costs in the company's cost structure.

Break-even Point

The point where the amount of goods produced or sold matches the total expenses, leading to neither a profit nor a loss.

Contribution Margin

The difference between sales revenue and variable costs, used to cover fixed costs and to generate profit.