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In cost-volume-profit (CVP) analysis, what does the break-even point represent?

Practice Questions

Q1
In cost-volume-profit (CVP) analysis, what does the break-even point represent?
  1. Total revenue equals total costs
  2. Total profit is maximized
  3. Total fixed costs are covered
  4. Total variable costs are minimized

Questions & Step-by-Step Solutions

In cost-volume-profit (CVP) analysis, what does the break-even point represent?
  • Step 1: Understand that businesses sell products or services to make money.
  • Step 2: Know that when a business sells something, it earns revenue (money coming in).
  • Step 3: Recognize that businesses also have costs (money going out) to operate, like rent, salaries, and materials.
  • Step 4: The break-even point is the moment when the money earned (total revenue) is exactly equal to the money spent (total costs).
  • Step 5: At the break-even point, the business is not making a profit, but it is not losing money either; it is at zero profit.
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