Which Condition Would Result in Invalidating an Application of Break-Even

question 26

Multiple Choice

Which condition would result in invalidating an application of break-even analysis?

• A) The variable cost to produce a unit is less than one percent of the fixed cost to run the plant.
• B) The purchasing department both offers quantity discounts to customers and receives quantity discounts from suppliers.
• C) The variable cost to produce a unit is within one percent of the sale price.
• D) The labor to manufacture the item is free.

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Definitions:

Fixed Costs

These are business expenses that remain constant regardless of the level of goods or services produced, such as rent, salaries, and insurance premiums.

Average Variable Cost

The total variable costs divided by the quantity of output produced, representing the variable cost per unit.

Marginal Cost

The additional cost incurred by producing one more unit of a good or service.

Fixed Costs

Costs that do not vary with the level of output or production in the short term, such as rent or salaries.