Answer (A) is correct. The company will break even when net income equals zero. Net income is equal to revenue minus variable expenses and fixed expenses, including advertising. Thus, if X equals advertising cost, the equation is (80,000)($25) – (80,000)($16) – $585,000 – X = 0 $2,000,000 – $1,280,000 – $585,000 – X = 0 X = $135,000