What is the break-even point?

• A. The level of sales where total revenues exceed total costs, resulting in profit.
• B. The level of sales at which total revenues are less than total costs.
• C. The level of sales at which total revenues equal total costs, resulting in zero profit.
• D. The level of sales where fixed costs are zero.

Answer: (C)

Break-even is the point where sales just cover all costs, so there is no profit or loss. At this level, total revenue equals total costs, which include both fixed costs (unchanged with output) and variable costs (which rise with each unit sold). The idea is that the revenue from each unit must cover its variable cost, and once fixed costs are covered, any additional contribution becomes profit. In formula form, break-even can be viewed as fixed costs divided by the contribution margin per unit (selling price minus variable cost per unit).

If you sell more than this level, you earn a profit; if you sell less, you incur a loss. The statement about fixed costs being zero is not the defining condition for break-even, since break-even can occur with nonzero fixed costs depending on price and cost structure.