Which of the Following Statements About Using the Equation Method

question 11

Multiple Choice

Which of the following statements about using the equation method to determine the break-even point is true?

• A) Operating income in the equation is set equal to the target income for the year.
• B) Operating income in the equation assumes that fixed costs are nil.
• C) Revenue in the equation includes only operating revenues plus fixed costs.
• D) The number of units required to reach the break-even point tends to be higher (as it incorporates total costs) using this method than when using the Contribution Margin method.
• E) Operating income in the equation is set equal to nil.

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Definitions:

Status Quo Bias

A cognitive bias that represents a preference for the current state of affairs, leading individuals to resist change.

Marginal Cost

The expense associated with creating an extra unit of a product or service.

Marginal Benefit

The further satisfaction or value an individual gains from consuming an extra unit of a certain product or service.

Optimal Quantity

The amount of a good or service that achieves the best balance between cost and benefit.