Asked by Peyton Bowers on May 13, 2024
Verified
Once a business is operating beyond the break-even point, why doesn't each additional dollar of revenue add a dollar to net income?
Net Income
The amount of earnings left over after all expenses and taxes have been deducted from total revenue.
Revenue
The total amount of money received by a company for goods sold or services provided during a certain time period.
Break-Even Point
The break-even point is the point at which total costs and total revenues are equal, meaning there is no net loss or gain.
- Gain insight into how fixed and variable costs impact operating leverage and profit opportunities.
- Assess the effect of shifts in sales volumes, expenditures, and prices on the economic viability of a business, using Cost-Volume-Profit (CVP) techniques.
Verified Answer
JL
Jessica LauchnorMay 16, 2024
Final Answer :
At the break-even point, all fixed costs and all variable costs (for production at the break-even volume) are covered and NI = 0. Production beyond the break-even point results in additional variable costs. Therefore, only the difference between additional revenue ($1) and additional variable costs (CR × $1) contributes to net income.
Learning Objectives
- Gain insight into how fixed and variable costs impact operating leverage and profit opportunities.
- Assess the effect of shifts in sales volumes, expenditures, and prices on the economic viability of a business, using Cost-Volume-Profit (CVP) techniques.