Break-even analysis examines the relationships between which of the following?

Break-even analysis examines the relationships between which of the following?

• A. Price and cost
• B. Profit and revenue
• C. Cost and inventory
• D. Price and demand

Answer: (A)

Break-even analysis centers on how revenue covers costs as you sell more units. The key relationship is between what you earn per unit (price) and what it costs to make or deliver that unit (cost per unit, plus fixed costs). This is captured by the contribution margin, which is price minus variable cost per unit. The break-even point is reached when total revenue equals total costs, so you can calculate it with fixed costs divided by the per-unit contribution margin. This shows why price and cost are the central focus: they determine how much profit is available to cover fixed costs and how many units must be sold to break even. The other options describe profitability, inventory, or demand effects, which aren’t the core relationships used to find the break-even point.

Break-even analysis centers on how revenue covers costs as you sell more units. The key relationship is between what you earn per unit (price) and what it costs to make or deliver that unit (cost per unit, plus fixed costs). This is captured by the contribution margin, which is price minus variable cost per unit. The break-even point is reached when total revenue equals total costs, so you can calculate it with fixed costs divided by the per-unit contribution margin. This shows why price and cost are the central focus: they determine how much profit is available to cover fixed costs and how many units must be sold to break even. The other options describe profitability, inventory, or demand effects, which aren’t the core relationships used to find the break-even point.