benefit-risk analysis
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.

Transcribed Image Text:Income & cost
100
70
0
Company A
Break-even
point
Income
100
Cost
Sales
Income & cost
100
30
0
Company B
Break-even
point
Income
100
Cost
Sales
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