Breakeven and Payback Analysis Quiz

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What is the breakeven point in a cost-revenue model?

The total fixed cost of a project
The value of a parameter that makes two elements equal (correct)
The minimum workforce cost
The amount of revenue generated from a project

What is the breakeven value in a cost-revenue model?

VC
FC
QBE (correct)
Q

What is the purpose of breakeven analysis in a cost-revenue model?

To determine the total fixed cost of a project
To determine the value of a parameter that makes two elements equal (correct)
To determine the amount of revenue generated from a project
To determine the minimum workforce cost

What type of costs are not directly dependent on the variable in a cost-revenue model?

Fixed costs (A) Signup and view all the answers

What are the two types of costs in a cost-revenue model?

Fixed costs and variable costs (C) Signup and view all the answers

How can the breakeven point be determined in a cost-revenue model?

By using linear or non-linear math relations, trial and error, or spreadsheet functions (A) Signup and view all the answers

What is the formula for profit?

P = R - (FC + vQ) (A) Signup and view all the answers

When variable cost, v, is lowered, what happens to the breakeven point?

It decreases and moves to the left (D) Signup and view all the answers

What is the purpose of finding the breakeven point between two alternatives?

To select the best alternative based on the anticipated value of the common variable (C) Signup and view all the answers

What is the formula for breakeven point (QBE)?

QBE = FC / (r - v) (B) Signup and view all the answers

What is the relationship between revenue per unit and the breakeven point?

An increase in revenue per unit decreases the breakeven point (B) Signup and view all the answers

What is the formula for total cost (TC)?

TC = FC + vQ (A) Signup and view all the answers

What is the breakeven amount a point of indifference to?

Accept or reject a project (B) Signup and view all the answers

When comparing two alternative projects, what should you select if the level is greater than the breakeven?

The alternative with the lower variable cost (B) Signup and view all the answers

What is the main drawback of using payback period to evaluate a project?

It ignores the cash flows after the payback period (D) Signup and view all the answers

What is the purpose of using payback period as a supplemental analysis?

To sense the economic risk in a project (A) Signup and view all the answers

What is the assumption about the interest rate when using payback period?

The interest rate can be 0% or greater than 0% (B) Signup and view all the answers

What is the common variable in the make/buy breakeven analysis?

Number of units produced each year (B) Signup and view all the answers

What is the breakeven value of X in the example?

4116 units per year (B) Signup and view all the answers

What is the purpose of using the Goal Seek tool in breakeven analysis?

To find the breakeven first cost (A) Signup and view all the answers

What is the result of using AW analysis to select between two machines?

Select machine A with AWA = $193 (B) Signup and view all the answers

What is the MARR used in the breakeven analysis example?

10% (D) Signup and view all the answers

What is the breakeven first cost found using the Goal Seek tool?

$96,669 (C) Signup and view all the answers