Question

Which one of the following condition is CORRECT at the break-even point?

• A. Total cost is more than the sales revenue
• B. Fixed cost is equal to variable cost
• C. Total cost is equal to sales revenue
• D. Total cost is less than the sales revenue

Answer 1

Answer:

C. Total cost is equal to sales revenue

Break-even point (BEP) is the production volume where total cost equals total sales revenue and the organization neither earns profit nor suffers loss. At this point, total cash inflows equal total cash outflows. The formula for BEP is BEP, where F is total fixed cost, s is selling cost per unit and v is variable cost per unit. When sales revenue is greater than total cost, there will be a profit and when sales revenue is less than total cost, there will be a loss.