A. Variable costs are costs that are incurred only when a product is made (or sold), such as material or labor or sales commissions. The total variable cost increases as production or sales increases, but the per unit variable cost remains unchanged as production or sales volume increases or decreases. the breakeven quantity is not the volume where revenues are equal to variable costs. Fixed costs also need to be covered, or a loss equal to the amount of the fixed costs will result.
B. The breakeven quantity is the number of units that must be sold in order to cover all costs, both fixed and variable, so that the company does not have a loss.
C. The marginal cost is the cost of the next unit produced or sold (whichever is appropriate). The breakeven quantity is not the volume where revenues are equal to marginal cost.
D. Fixed costs are costs that do not change, regardless of the level of production or sales, as long as the volume remains within the relevant range. The breakeven quantity is not the volume of ourput at which revenues are equal to fixed costs. Variable costs also need to be covered, or a loss equal to the amount of the variable costs will result.
