At break-even level of production, which two financial measures are equal?

At break-even level of production, which two financial measures are equal?

• A. Total revenue and total cost
• B. Variable costs and fixed costs
• C. Average total cost and price
• D. Profit and revenue

Answer: (A)

Break-even is when all costs are covered by sales, so there is no profit or loss. At that point, total revenue equals total cost. Total revenue is simply price times the quantity sold, while total cost is the sum of fixed costs plus variable costs for that quantity. When you produce and sell the break-even quantity, the revenue from those sales exactly covers every cost the business incurs, leaving profit of zero, which means revenue equals cost. The other pairings don’t reflect the overall balance needed for break-even: fixed and variable costs are parts of total cost and aren’t equal at that point; profit and revenue can only be equal if both are zero; and while price can match average total cost per unit, the fundamental reconciliation at break-even is that total revenue equals total cost.

Break-even is when all costs are covered by sales, so there is no profit or loss. At that point, total revenue equals total cost. Total revenue is simply price times the quantity sold, while total cost is the sum of fixed costs plus variable costs for that quantity. When you produce and sell the break-even quantity, the revenue from those sales exactly covers every cost the business incurs, leaving profit of zero, which means revenue equals cost. The other pairings don’t reflect the overall balance needed for break-even: fixed and variable costs are parts of total cost and aren’t equal at that point; profit and revenue can only be equal if both are zero; and while price can match average total cost per unit, the fundamental reconciliation at break-even is that total revenue equals total cost.