Break-even point means?

• A. No profit or loss
• B. Profit
• C. Inventory
• D. Marketing

Answer: (A)

Break-even is the level of output where total revenue equals total costs, so there is no net profit or loss. At this point all fixed costs and variable costs are covered by sales revenue. Any sales beyond this point add to profit, because each additional unit contributes to fixed costs and then adds income. If sales are below this level, total costs exceed revenue and you incur a loss. For example, with fixed costs of 1,000 and a price of 3 per unit with variable cost of 2 per unit, the contribution margin is 1 per unit, so break-even is 1,000 units. Revenue is 3,000 and total costs are 3,000 at that level, yielding zero profit. The other options don’t describe this balance: profit would occur after breaking even, while inventory and marketing refer to different concepts.