Answered: benefit-risk analysis

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The figure below shows each break-even point of Company A and Company B. Which of the following is an appropriate description concerning the benefit-risk analysis of the two companies?

a.) Both companies have the same break-even point and fixed cost, so the profit and loss is also equal as long as the sales are equal.

b.) The break-even points of both companies are equal, so the sales necessary for making equal profits are also equal for both companies.

c.) The variable cost ratio of Company A is lower than Company B, and therefore, when the sales above the break-even point are equal, the profit of Company A is higher than Company B.

d.) When the sales of both companies above the break-even point are equal, Company B that has a lower fixed cost makes a higher profit than Company A.