What Is the Effect of the Two-Pronged Test That Allows

question 3

Essay

What is the effect of the two-pronged test that allows the exclusion from PHCI of certain AIR (adjusted income from rents)?

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Definitions:

Monthly Fixed Expense

Regular, unchanging expenses that occur on a monthly basis, such as rent or salaries, regardless of business activity levels.

Target Profit

The amount of net income a company aims to achieve for a specified period as part of its financial and operational goals.

Break-Even Sales

The amount of revenue needed to cover total fixed and variable expenses, resulting in a net profit or loss of zero.

Margin Of Safety

The difference between actual or projected sales and the break-even point, indicating the level of risk in failing to cover fixed and variable costs.