Multiple Choice
Which of the following is needed to prepare a sales budget?
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4. Merchandising Operations
Net Sales
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Which of the following figures should be used to calculate the break-even point for a company?
A
Net Income
B
Net Sales
C
Gross Sales
D
Total Assets
Verified step by step guidance1
Understand the concept of break-even point: The break-even point is the level of sales at which total revenues equal total costs, resulting in zero profit or loss. It is a critical metric for businesses to determine the minimum sales required to cover all expenses.
Identify the formula for calculating the break-even point: The break-even point is typically calculated using the formula: \( \text{Break-even Sales} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}} \). Contribution margin is derived from sales figures, not net income, gross sales, or total assets.
Clarify why Net Sales is the correct figure: Net Sales represents the actual revenue generated from sales after deducting returns, allowances, and discounts. It is the most relevant figure for calculating the break-even point because it reflects the true income from operations.
Explain why other options are incorrect: Net Income is the profit after all expenses, taxes, and interest, which is not directly used in break-even calculations. Gross Sales is the total sales before deductions, which does not account for returns or discounts. Total Assets represent the company's resources and are unrelated to sales or operational costs.
Conclude that Net Sales is the appropriate figure to use for calculating the break-even point, as it provides the most accurate representation of revenue directly tied to operational performance.
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