In break-even analysis, which statement best describes the break-even point?

• A. The revenue level that yields maximum profit
• B. The quantity that minimizes fixed costs
• C. The revenue after taxes
• D. The revenue level at which total costs are covered

Answer: (D)

The main concept is the break-even point: the revenue level at which all costs are covered and profit is zero. Total costs consist of fixed costs that don’t change with output plus variable costs that increase as production rises. At the break-even point, revenue just covers both fixed and variable costs, so there’s no profit or loss. Beyond this point, revenue exceeds costs and the business earns a profit; below it, costs exceed revenue and the business incurs a loss. The statement that describes the revenue level at which total costs are covered captures this idea exactly.