About Break-even Point

When the market price of an asset is equal to the initial cost, we have reached the breakeven point (break-even price) for a transaction or investment. A company's breakeven point is calculated by dividing the entire fixed costs of production by the revenue per unit, minus the variable expenses per unit, in accounting terms. The term "fixed costs" here refers to expenses that are constant regardless of how many units are sold. The point at which a product's overall revenues and costs equal each other is known as the breakeven point.

Application of BEP

If you're looking for ways to make money, breakeven points are a great tool. As an example, the breakeven point in a property would be the amount of money a homeowner would need to generate from a sale to offset the net purchase price, which includes closing costs and taxes and fees as well as insurance and interest paid on the mortgage—as well as costs related to maintenance and home improvement. At that pricing, the homeowner would make or lose money in precisely the same way.

Investors use BEPs to determine the price at which security must trade in order to cover all of the trade's expenses including, but not limited to taxation; commissions; management fees; and other fees. When determining a company's breakeven point, the gross profit margin is divided by the fixed costs.

Conclusion

It's commonplace in the world of business and finance to talk about a breakeven point. Entire production revenue equals total production expenses is referred to in accounting terminology. The breakeven point is the moment at which the initial cost equals the current market price in an investment transaction. To put it another way, an underlying asset's market price will reach its breakeven point in options trading when it no longer causes a loss to the buyer.

Following are some of the multiple choice questions on the Break-even Point with answers that will help the students in developing their knowledge.

Break-even Point MCQ

1. Which of the following would not affect the break-even point

  • number of units sold
  • variable expense per unit
  • total fixed expenses
  • selling price per unit

2. If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was

  • $3,000,000
  • $12,000,000
  • $1,000,000
  • $5,000,000

3. Which of the following is not a correct definition of the break-even point?

  • the point where total sales equals total costs.
  • the point where total profit equals total fixed expenses.
  • the point where total contribution margin equals total fixed costs.
  • the point where total profit equals zero.

4. What does break even point show?

  • where a business is neither making a profit or loss
  • how many items to make
  • how much profit they're making
  • where a business has more fixed costs than variable

5. How is break even point measures?

  • dollars
  • loss
  • profit
  • items

6. What assumption does this statement say "Break even is 54 units"?

  • if we sell 55 we aren't making a profit
  • if we sell 54 we begin to make a profit
  • if we sell 55 we begin to make a profit
  • if we sell 54 we are losing money

7. Daisy is an artist. It costs her $150 per week to operate her art studio. In this case, what is the $150?

  • the break-even point
  • the fixed cost
  • the variable cost
  • the sales revenue

8. Sophie creates handbags from her home studio (costing $600 per month to operate). Each bag requires materials that cost $40. Each bag takes two hours to make (at $15 per hour). The baskets are sold for $125 each. What is the variable cost per unit?

  • $30
  • $125
  • $600
  • $70

9. Tony pays Php120 daily for rent in his BBQ stand. Each stick costs him Php4 and sells it for Php8. How many sticks of BBQ should he sell everyday to reach break even point?

  • 30
  • 120
  • 4
  • 240

10. Rent is an example of a fixed cost.

  • TRUE
  • FALSE

11. What is the margin of safety?

  • the margin between projected units and break even point units
  • the margin between profit and loss
  • the margin between units and sales
  • the margin between each break even point

12. What is the formula for contribution?

  • cost price - selling price
  • fixed costs - variable costs
  • selling price - variable cost
  • selling price - cost price

13. What is one limitation to calculating break even?

  • helps projected sales
  • based on estimates
  • based on multiple products
  • considers stock wastage

14. Which one is not included in the Break Even formula?

  • variable costs per unit
  • total fixed costs
  • selling price per unit
  • cost price per unit

15. What is the break-even point in units for a company whose total fixed costs are $275,450; selling price per unit is $16; and variable cost per unit is $14.75?

  • 220,360
  • 150,300
  • 183,633
  • 225,120

16. When a business has made enough money to pay its costs and begin to make a profit, it has reached its

  • break-even point
  • variable-cost margin
  • fixed cost
  • selling price

17. Some business costs are classified as fixed costs because they

  • must be paid within a set time
  • don't change when sales go up or down
  • are unpredictable and must be estimated
  • cost all businesses the same amount

18. If a business's sales double, its variable costs will also likely

  • remain the same
  • decrease
  • increase
  • double

19. Which of the following are limitations of break-even analysis?

  • Capital employed is taken into account.
  • Limitation of non-linear behavior of costs
  • Limitation of presence of perfect competition
  • Static concept

20. The Break-even Point of a company is that level of sales income which will equal the sum of its fixed cost.

  • True
  • False

21. Break-even analysis chart is drawn between

  • volume of production and income
  • overhead cost and fixed cost
  • material cost and labour cost
  • None of these

22. The break-even point represents

  • The most economical level of operation of any industry
  • The time when unit can run without any loss and profit
  • Time when industry will undergo loss
  • The time when company can make maximum profits

23. The break-even point is when

  • the company is operating at a loss.
  • total revenue equals total cost.
  • the company is earning a small profit.
  • total sales equals operating income.

24. Break-even point is that level of sales revenue at which there is ________

  • Profit
  • Loss
  • No profit no loss
  • None of the above

25. What is meant by Break-even point?

  • Where the business made no loss nor profit.
  • When sales are more than cost of sales.
  • When profit is more than expenses
  • When gross expenses exceeds income.

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