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      Question

      If a firm’s break-even point is 25% of total sales,

      which of the following is TRUE?
      A The firm incurs loss on remaining 75% sales Correct Answer Incorrect Answer
      B Fixed costs are 25% of total costs Correct Answer Incorrect Answer
      C Contribution on 25% sales equals fixed costs Correct Answer Incorrect Answer
      D Variable cost equals fixed cost Correct Answer Incorrect Answer
      E Profit margin is equal to P/V ratio Correct Answer Incorrect Answer

      Solution

      Solution:

      • At break-even point: Contribution = Fixed Cost
      • If BEP is 25% of sales, contribution earned from that 25% sales exactly covers fixed costs
      • Remaining sales generate profit

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