ACCA Performance Management (F5) Certification Practice Exam

How can management use break-even analysis?

1. To increase budgets without consequence

2. To focus on increasing the variable costs of products

3. To set prices based on fixed costs

4. To focus on the price of the product

The correct answer is: To focus on the price of the product

Break-even analysis is a financial tool used to determine the level of sales needed to cover total costs, which include both fixed and variable expenses. It provides insights into how pricing strategies can impact overall profitability. Using break-even analysis, management can identify the relationship between cost structures, pricing, and sales volume. By focusing on the price of the product, management can effectively set pricing strategies that ensure sales meet or exceed the break-even point. If prices are too low, the company may struggle to cover its costs, while excessively high prices may deter customers. Therefore, understanding the price at which products must be sold to achieve profitability is critical for decision-making and strategic planning. In this context, the relevance of focusing on the price of the product highlights how crucial it is for management to balance cost considerations with market conditions and pricing strategies to maintain competitiveness and profitability.