Question

At 'break-even point'

• A. Constant expenses = Profits
• B. Total sales = variable expenses
• C. Variable expenses - Profits = Total sales
• D. None of the above

Hint:

At break-even point, Contribution Margin (Total Sales - Variable Expenses) exactly equals Fixed Costs. Always start from the fundamental identity: Profit = Sales - (Fixed Costs + Variable Costs) = 0.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks for the true mathematical relationship that defines the "break-even point" in business or industrial economics.


Step 3: Detailed Explanation:
The break-even point (BEP) is defined as the level of production or sales at which total revenues exactly equal total costs, resulting in a net profit of strictly zero.
The fundamental economic equation is: \[ \text{Total Sales (Revenue)} = \text{Total Costs} \] Total Costs can be broken down into Fixed Costs (Constant expenses) and Variable Costs (Variable expenses). \[ \text{Total Sales} = \text{Constant expenses} + \text{Variable expenses} \] Let's evaluate the given options based on this defining equation (where Profit = 0):
• (A) Constant expenses = Profits: Incorrect. At BEP, Profit is exactly 0, while constant expenses are typically a positive baseline value.
• (B) Total sales = variable expenses: Incorrect. This statement implies that constant expenses are zero (\(\text{Total Sales} - \text{Variable expenses} = 0\)), which ignores fixed costs entirely.
• (C) Variable expenses - Profits = Total sales: Since Profit = 0 at BEP, this equation simplifies to Variable expenses = Total sales, which is identical to option (B) and is therefore incorrect. Since none of the statements A, B, or C correctly describe the break-even condition, the correct choice must be "None of the above".


Step 4: Final Answer:
None of the listed equations correctly define the break-even point.