Which of the following statements is true of operating breakeven analysis?
A) It involves determining the level of production and sales at which net operating income is equal to one.
B) It involves determining the point at which revenue from sales equals operating costs.
C) It involves the analysis of the level of production and sales at which financing costs are recovered.
D) It involves determining the operating income the firm needs to just cover all of its financing costs.
E) It involves the analysis of the interest payments to bondholders and the dividend payments to preferred stockholders.

Question

Quizplus · Accepted Answer

Operating breakeven analysis involves determining the point at which revenue from sales equals operating costs, which is the level of production and sales at which the firm does not make a profit or a loss. This analysis is important in determining a company's pricing strategy, as well as its sales and production targets. Option A is incorrect because net operating income is not necessarily equal to one, but rather, it is the point at which it equals zero. Option C is incorrect because financing costs are not considered in operating breakeven analysis. Option D is incorrect because this involves financial breakeven analysis, which considers both operating and financing costs. Option E is incorrect because this involves the analysis of the costs and payments associated with financing, rather than the operating breakeven point.

Which of the Following Statements Is True of Operating Breakeven