Break even analysis is at the core of unit costs. Do you believe the fixed costs...

Break even analysis is at the core of unit costs. Do you believe the fixed costs used as a numerator is the best method for this analysis? Why or why not?

Answer needs to be over 5 lines, thank so much.

Expert Solution

Cost are classified as Variable cost and fixed cost .Variable cost are cost that varies with level of sales whereas fixed cost is a cost that remain constant or same with a relevant range of output (Does not change with sales).

Breakeven point is a level at which Total revenue equals Total cost .Subtracting variable cost from sales revenue provides contribution margin and when we subtract Fixed cost from contribution ,we get net income .At breakeven there is no profit and no loss .so contribtuion margin is equal to fixed cost .contribtuion margin is a per unit profit that each unit sales contributes to profit of company (unit cost is core ) .

Therefore for analysing how may unit to be sold to achieve break even ,we divide Fixed cost by unit contribution .

using fixed cost is a best method for analysing break even as It is a line that tells how much contribution need to be earned to break even .

ekkarill92 answered 1 year ago

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