Final answer:
Option (D), Break-even volume calculation assumes that operating income is equal to zero, meaning total revenue from sales exactly covers all variable and fixed costs, resulting in neither profit nor loss.
Step-by-step explanation:
To calculate break-even volume, operating income in the formula is equal to zero (D). At the break-even point, a company is not making a profit but also not incurring a loss. This means that total revenue generated from the sales of products or services just covers the total costs, which include both fixed and variable costs.
Total costs consist of fixed costs, which do not change regardless of the level of production, and variable costs, which vary with output.
The average variable cost is calculated by dividing the variable cost by the total output at each level of output. When a firm's average variable cost of production is lower than the market price, they would be making a profit if we do not consider fixed costs.
However, break-even analysis focuses on the point where revenues equal the sum of variable and fixed costs, leading to an operating income of zero. Therefore, when performing a break-even analysis, we're concerned with the volume of sales that will result in no profit or loss.