In the context of the fundamental accounting equation, which costs are included in the numerator when calculating the accounting profit break-even point?

• A. Contribution margin
• B. Fixed costs only
• C. Total costs (fixed plus variable)
• D. Variable costs only

Answer: (B)

Verified step by step guidance

1. Understand the fundamental accounting equation: Assets = Liabilities + Equity. This equation is the foundation of financial accounting and helps in analyzing the financial position of a business.
2. Recognize that the accounting profit break-even point is the level of sales at which total revenue equals total costs, resulting in zero profit. This is a critical concept in cost-volume-profit analysis.
3. Identify the components of total costs: Fixed costs (costs that do not change with the level of production, such as rent and salaries) and variable costs (costs that vary directly with production, such as raw materials).
4. Focus on the numerator in the calculation of the accounting profit break-even point. The numerator includes fixed costs only because these are the costs that must be covered to achieve break-even, regardless of production levels.
5. Understand that contribution margin (sales revenue minus variable costs) is used to cover fixed costs. Once fixed costs are covered, any additional contribution margin contributes to profit.