Break-even and margin terminology in plant economics: select the incorrect statement from the following commonly used relationships and definitions.
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AGross margin = net income - net expenditure
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BNet sales realisation (NSR) = Gross sales - selling expenses
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CAt break-even point, NSR is more than the total production cost
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DNet profit = Gross margin - depreciation - interest
Answer
Correct Answer: At break-even point, NSR is more than the total production cost
Explanation
Introduction / Context:Understanding basic profitability terms—gross margin, net sales realisation (NSR), break-even point, and net profit—is vital for decision-making in chemical plants. This question asks you to spot the incorrect statement among several commonly cited relationships.
Given Data / Assumptions:
- Break-even point is defined where total revenues equal total costs.
- Conventional cost classifications are used (manufacturing costs, selling expenses, depreciation, interest).
- Relationships are simplified to standard teaching definitions used in introductory plant economics.
Concept / Approach:At the break-even point, revenue exactly equals total cost (no profit, no loss). Therefore, NSR equals total production cost at break-even—not more than it. Any statement implying revenue exceeds total cost at break-even is incorrect by definition.
Step-by-Step Solution:Recall break-even definition: NSR = Total production cost at B.E.P.Option (c) claims NSR is more than total production cost at B.E.P., which contradicts the definition.Hence, (c) is the incorrect statement asked for.
Verification / Alternative check:A standard break-even chart shows the revenue line intersecting the total cost line at B.E.P., where profit = 0. Immediately to the right of this point profit becomes positive, and to the left, negative.
Why Other Options Are Wrong:(a) Interprets gross margin broadly as the net of revenues and expenditures; while textbook definitions often use “sales minus cost of goods sold,” this broad phrasing can be consistent in simplified contexts.(b) NSR is commonly taken as gross sales minus selling-related deductions; acceptable for teaching purposes.(d) A simplified profitability identity often used in instructional problems (taxes may be omitted for simplicity).
Common Pitfalls:
- Confusing break-even with target-profit points.
- Applying a company’s detailed chart of accounts to simplified textbook identities and calling them “wrong.”
Final Answer:At break-even point, NSR is more than the total production cost