Final answer:
The correct option is c) Target net income.
Rather than breaking even, management typically sets a 'target net income' as an income objective that defines the level of profit desired above total costs. Meeting this goal ensures not just sustainability but also the potential for business growth and financial security.
Step-by-step explanation:
Rather than simply breaking even, management usually sets what is known as a target net income. This is an income objective that dictates the amount of revenue that needs to be earned above total costs to meet the company's profit goals. Each business, regardless of its size, strives to earn a profit, which can be calculated as Profit = Total Revenue - Total Cost. When setting prices and determining output levels, a firm must consider not just average costs but also their profit thresholds to ensure sustainability and profitability.
A firm operating below the break-even point is operating at a loss and may face a choice to continue producing goods or cease operations. The decision is typically based on which option minimizes losses. However, aiming for a profit includes setting a target net income that serves as a guide for business strategy and operational decisions. It's a more ambitious goal than merely covering costs; it's about generating a surplus to support business growth, reward shareholders, and secure the company's financial health.