Question

In Break-Even Analysis diagram, at the break-even point:

• A. Total cost = Variable cost – Fixed cost.
• B. Fixed cost = Total cost + Variable cost
• C. Total cost = Total revenue.
• D. Total revenue = Total cost – Variable cost

Hint:

The word "Break-Even" literally means to "even out." You haven't lost any money, but you haven't made any either. This only happens when every dollar you spent (Total Cost) is matched by a dollar you earned (Total Revenue).

Answer 1

The Correct Option is C

1. The Components of Cost: Total Cost (TC) is the sum of Fixed Costs (FC) and Variable Costs (VC). $$TC = FC + VC$$

2. Defining the Break-Even Point (BEP): The Break-Even Point is the level of sales or production at which the

Total Revenue (TR) generated from sales exactly equals the

Total Cost (TC) incurred in production. $$TR = TC$$

3. Graphical Representation:

• Below the BEP, the Total Cost line is above the Total Revenue line, representing the

Loss zone.

• Above the BEP, the Total Revenue line is above the Total Cost line, representing the

Profit zone.

• At the intersection, the net profit is zero ($TR - TC = 0$).
Therefore, the fundamental identity of the break-even point is that total expenditure matches total income.