12 Questions
What is the margin of safety?
The amount by which sales exceed the break-even point
If the break-even quantity calculation results in a non-whole number, what should the business do?
Round up to the nearest whole number
Which of the following is NOT a useful application of break-even analysis in business decision-making?
Forecasting long-term market trends
If a business wants to increase its margin of safety, which of the following actions would be most effective?
Increase selling price and/or decrease costs
What is a potential limitation of using break-even analysis for business decision-making?
All of the above
If a business sells a product for $20 and has variable costs of $12 per unit and fixed costs of $10,000, what is the break-even quantity?
1,000 units
What is the definition of the break-even point?
The point at which a business makes neither a profit nor a loss
What information does the break-even point provide to a business?
The number of units the business needs to sell to cover its total costs
What is the purpose of a break-even graph?
To illustrate the relationship between costs, revenue, and output
In the example provided, what is the break-even point for the business selling t-shirts?
100 units
What is the significance of the margin of safety shown in the break-even graph?
The difference between the break-even point and the actual level of output
What is the key relationship between total revenue and total costs at the break-even point?
Total revenue is equal to total costs
Test your knowledge on calculating the break-even point in business. Understand the concept of break-even level of output and how it impacts a company's profitability.
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