Question

Which of the following statements is true of the break-even point?

a. When calculating the break-even point, income taxes play no role.
b. When calculating the break-even point, fixed costs play no role.
c. When calculating the break-even point, variable costs play no role.
d. When calculating the break-even point, contribution margin plays no role.

Answer 1

The correct answer is: a. When calculating the break-even point, income taxes play no role.

Step-by-step explanation:

The student has asked which statement is true about the break-even point. The correct answer is: a. When calculating the break-even point, income taxes play no role.

Here's why: at the break-even point, a firm earns zero economic profits, meaning that there is no taxable profit to consider. Furthermore, while calculating the break-even point, both fixed and variable costs are essential.

Fixed costs must be covered for a firm to break even, while the contribution from each unit sold after variable costs, known as the contribution margin, also plays a critical role in determining the break-even point.