Break-even chart truths and misconceptions

Steps:

• Evaluate statement 1: Classifying costs as fixed or variable requires judgment and can be complex due to semi-variable costs in practice.
• Evaluate statement 2: Fixed costs remain constant regardless of output levels, by definition in cost accounting.
• Evaluate statement 3: The chart plots total costs and revenues against output, revealing the break-even point as their intersection.
• Select option D, as only statement 3 holds true for break-even chart preparation.

Why D is correct:

• In cost-volume-profit analysis, the break-even chart visually identifies the output level where total revenue equals total costs, making the point evident.

Why the others are wrong:

• A: Statements 1 and 2 are false, as cost classification is not always easy and fixed costs do not change.
• B: Includes false statements 1 and 2 alongside the true 3.
• C: Statement 2 is false, despite including the true 3.

Final answer: D