The break-even point is the level of activity where:

Question

BlackTom AI · Accepted Answer

The question asks about the break-even point, defined as the level of activity at which a business covers all of its costs.

In this context, the standard managerial accounting concept is that at the break-even point, total contribution margin equals total fixed costs. The contribution margin is the amount remaining from sales after variable costs are subtracted, which is used to cover fixed costs and any profit after that point.

Option analysis cannot be completed as the provided data lists no answer options. Nevertheless, we can reason about the single given statement from the input: 'Contribution Margin = Fixed Cost'.

Why this statement aligns with the break-even concept: when contribution margin exactly equals fixed costs, there is no leftover to contribute to profit or to absorb any further fixed costs; revenues exactly cover costs, so profit is zero. This matches the formal definition of the break-even point.

Possible misconceptions to avoid: 
- If someone said 'Contribution Margin > Fixed Costs' at the break-even point, that would imply profit, not break-even. 
- If someone claimed 'Total Sales = Fixed Costs', that ignores variable costs and the role of contribution margin; it would not correctly identify the break-even condition. 
- If someone claimed 'Net income = 0' but mixed up the timing of expenses, that could be true at break-even but lacks the explicit link to contribution margin and fixed costs that defines the break-even calculation.

In summary, the core principle is that break-even occurs where the contribution margin exactly covers fixed costs, yielding zero profit. The statement 'Contribution Margin = Fixed Cost' captures that relationship, assuming it refers to total contribution margin relative to total fixed costs at the relevant level of activity.

2025FA_IMC_402-0_SEC20 Practice Exam for Final

The break-even point is the level of activity where:

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