Question

Solving for the sales level needed to achieve a profit of zero is:

a) break-even analysis
b) cost volume profit analysis
c) target profit analysis.

Answer 1

Break-even analysis is the process used to calculate the sales volume required to achieve a profit of zero, taking into account both fixed and variable costs over the long term.

Step-by-step explanation:

The process of calculating the sales volume needed to achieve a profit of zero is known as a break-even analysis. This is a critical concept in financial management and involves assessing a company's financial information to determine the point at which total revenues equal total expenses, leading to neither a profit nor a loss. Fixed costs and variable costs play important roles in this analysis, as they must both be covered for a firm to reach its break-even point. The focus here is on understanding how different levels of sales affect profits, especially when considering the long-run perspective of production and costs.