The Breakeven Point Determines at Which Point to Halt Production

question 52

True/False

The breakeven point determines at which point to halt production because sales beyond the breakeven point result in losses to the firm.

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Definitions:

Break-Even

The point at which total costs and total revenues are equal, resulting in no net gain or loss.

Fixed Expense

Costs that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance premiums.

Variable Expense

Expenses that vary directly with changes in production volume or business activity levels.

Contribution Margin Ratio

A ratio that measures the proportion of sales revenue that exceeds variable costs, indicating how effectively a company can cover its fixed costs.