Break-even analysis
A) can be adapted to evaluate the quantity that needs to be sold to earn a target profit--by adding the target profit to fixed costs.
B) may result in a "break-even" quantity that it would be impossible to sell at the assumed price.
C) focuses on the contribution of each unit sold to the reduction of fixed costs.
D) All of the above are true.
E) None of the above is true.

Question

Quizplus · Accepted Answer

A) is true as break-even analysis can be used to determine the quantity needed to earn a target profit by adding the target profit to fixed costs. B) is also true as it is possible for the break-even quantity to be higher than the maximum quantity that can be sold at a given price. C) is also true as break-even analysis focuses on the contribution margin (revenue - variable costs) of each unit sold in reducing the fixed costs. Thus, all three statements are true and the correct answer is D.

Break-Even Analysis