The Cost-Benefit Principle Indicates That an Action Should Be Taken

question 62

Multiple Choice

The Cost-Benefit Principle indicates that an action should be taken if, and only if:

• A) its benefits are positive.
• B) its costs are small.
• C) its benefits are a result of its costs.
• D) its benefits exceed its costs.

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Definitions:

Cash Break-Even

The amount of revenue necessary to cover all cash operating expenses, ignoring non-cash costs.

Fixed Costs

Expenses that do not change with changes in the volume of production or sales, such as rent, salaries, and insurance.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the percentage of fixed costs in a company's cost structure.

Financial Break-Even

The point at which total revenues and total expenses are equal, leading to a net income of zero.