Break-even analysis: components of total cost versus output In a cost–volume–profit (CVP) framework, total cost (TC) varies with output. Select the correct composition of total cost.
Mechanical Engineering
Industrial Engineering and Production Management
Difficulty: Easy
Choose an option
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AFixed cost + Sales revenue
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BVariable cost + Sales revenue
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CFixed cost + Variable cost
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DFixed cost + Variable cost + Profit
Answer
Correct Answer: Fixed cost + Variable cost
Explanation
DefinitionsTotal cost (TC) = Fixed cost (does not vary with output) + Variable cost (varies with output). Sales revenue and profit are not parts of cost.
Break-even conditionAt break-even: Sales revenue = Total cost = Fixed cost + Variable cost.
Final AnswerFixed cost + Variable cost.