Break-even analysis is a financial tool used to determine:
A) The profitability of a business.
B) The minimum number of units a business needs to sell to cover its costs.
C) The optimal pricing strategy for a product.
D) The market share of a business.
Answer: B) The minimum number of units a business needs to sell to cover its costs.
The break-even point occurs when:
A) Total revenue equals total costs.
B) Total revenue exceeds total costs.
C) Total revenue is less than total costs.
D) Total revenue is maximized.
Answer: A) Total revenue equals total costs.
Which of the following costs is NOT considered when calculating the break-even point?
A) Fixed costs.
B) Variable costs.
C) Semi-variable costs.
D) Sunk costs.
Answer: D) Sunk costs.
The break-even analysis formula is:
A) Break-even point = Fixed costs / Variable costs.
B) Break-even point = Total revenue – Total costs.
C) Break-even point = Fixed costs / (Selling price – Variable costs per unit).
D) Break-even point = Total revenue / Total costs.
Answer: C) Break-even point = Fixed costs / (Selling price – Variable costs per unit).
In break-even analysis, the contribution margin is calculated as:
A) Selling price per unit minus variable costs per unit.
B) Total revenue minus total costs.
C) Fixed costs divided by variable costs per unit.
D) Total revenue divided by total costs.
Answer: A) Selling price per unit minus variable costs per unit.
If a company’s break-even point is 5,000 units and its fixed costs are $50,000, what is the contribution margin per unit?
A) $5
B) $10
C) $15
D) $20
Answer: D) $20
Which of the following statements is true about the break-even analysis?
A) It is only applicable to manufacturing companies.
B) It helps in determining the optimal production level for maximum profitability.
C) It is primarily used for short-term decision making.
D) It assumes that all costs are linear and do not change with the level of activity.
Answer: D) It assumes that all costs are linear and do not change with the level of activity.
Break-even analysis is most useful for:
A) Start-up businesses.
B) Non-profit organizations.
C) Service-based companies.
D) Large corporations.
Answer: A) Start-up businesses.
The margin of safety in break-even analysis refers to:
A) The difference between actual sales and break-even sales.
B) The difference between fixed costs and variable costs.
C) The difference between total revenue and total costs.
D) The difference between selling price and variable costs per unit.
Answer: A) The difference between actual sales and break-even sales.
Break-even analysis assumes that:
A) Demand for the product is constant.
B) The selling price per unit will always be higher than the variable costs per unit.
C) The business operates at full capacity.
D) Fixed costs remain constant over time.
Answer: D) Fixed costs remain constant over time.
The break-even point can be expressed in terms of:
A) Sales revenue.
B) Number of units sold.
C) Time period.
D) All of the above.
Answer: D) All of the above.
Which of the following is NOT a limitation of break-even analysis?
A) It assumes a linear relationship between costs and activity.
B) It does not consider changes in market conditions.
C) It does not account for multiple product lines.
D) It cannot be used for decision-making in service-based industries.
Answer: D) It cannot be used for decision-making in service-based industries.
The break-even point can be influenced by changes in:
A) Fixed costs.
B) Variable costs per unit.
C) Selling price per unit.
D) All of the above.
Answer: D) All of the above.
The break-even analysis assumes that the sales mix:
A) Remains constant.
B) Will vary over time.
C) Is irrelevant for the analysis.
D) Depends on market conditions.
Answer: A) Remains constant.
The break-even point is calculated by dividing the total fixed costs by the:
A) Contribution margin ratio.
B) Gross profit margin.
C) Operating income.
D) Net profit margin.
Answer: A) Contribution margin ratio.
If a company’s break-even point is 10,000 units and the contribution margin per unit is $5, what are the total fixed costs?
A) $2,000
B) $5,000
C) $10,000
D) $50,000
Answer: D) $50,000
The break-even analysis assumes that the selling price per unit:
A) Will always be higher than the fixed costs.
B) Will be constant regardless of the level of activity.
C) Can fluctuate based on market demand.
D) Has no impact on the break-even point.
Answer: B) Will be constant regardless of the level of activity.
The break-even point is an important tool for:
A) Determining the profitability of a business.
B) Assessing the financial health of a business.
C) Evaluating the risk associated with a business.
D) Making pricing decisions.
Answer: D) Making pricing decisions.
Which of the following statements is true about the margin of safety in break-even analysis?
A) It represents the level of risk in a business.
B) A higher margin of safety indicates higher profitability.
C) It is the difference between selling price and variable costs per unit.
D) It represents the buffer zone between actual sales and the break-even point.
Answer: D) It represents the buffer zone between actual sales and the break-even point.
Break-even analysis is based on the assumption that:
A) Variable costs per unit decrease with higher production levels.
B) Fixed costs per unit remain constant.
C) Total costs increase proportionally with the level of activity.
D) The break-even point can never be reached.
Answer: B) Fixed costs per unit remain constant.
The break-even analysis helps a business determine:
A) The maximum sales revenue it can achieve.
B) The point at which it starts making a profit.
C) The optimal level of production for cost minimization.
D) The breakeven point for future years.
Answer: B) The point at which it starts making a profit.
Which of the following statements about break-even analysis is correct?
A) It is only applicable to manufacturing businesses.
B) It considers both fixed and variable costs.
C) It is based on historical financial data.
D) It provides information about the market demand for a product.
Answer: B) It considers both fixed and variable costs.
The break-even analysis is most useful for:
A) Assessing the financial performance of a business.
B) Evaluating the efficiency of production processes.
C) Determining the optimal product mix.
D) Analyzing the liquidity position of a business.
Answer: A) Assessing the financial performance of a business.
The break-even point in sales dollars can be calculated by dividing the total fixed costs by the:
A) Contribution margin ratio.
B) Selling price per unit.
C) Variable costs per unit.
D) Total variable costs.
Answer: A) Contribution margin ratio.
The margin of safety is defined as the difference between:
A) Total revenue and total costs.
B) Fixed costs and variable costs.
C) Break-even point and actual sales.
D) Selling price and variable costs per unit.
Answer: C) Break-even point and actual sales.
: In break-even analysis, the contribution margin ratio is calculated by dividing the contribution margin by the:
A) Fixed costs.
B) Total revenue.
C) Selling price per unit.
D) Variable costs per unit.
Answer: B) Total revenue.
Break-even analysis assumes that:
A) Variable costs per unit are fixed over time.
B) The selling price per unit is constant.
C) Total costs are always equal to total revenue.
D) Fixed costs change in direct proportion to the level of activity.
Answer: B) The selling price per unit is constant.
The break-even point can be expressed as a percentage of:
A) Total fixed costs.
B) Total variable costs.
C) Total costs.
D) Total sales revenue.
Answer: D) Total sales revenue.
Which of the following is NOT a benefit of break-even analysis?
A) It helps in setting sales targets.
B) It aids in pricing decisions.
C) It assists in budgeting and forecasting.
D) It provides insights into customer preferences.
Answer: D) It provides insights into customer preferences.
Break-even analysis is a valuable tool for:
A) Long-term strategic planning.
B) Assessing the financial feasibility of a project.
C) Analyzing competitors’ pricing strategies.
D) Determining the market share of a business.
Answer: B) Assessing the financial feasibility of a project.