What defines the break-even point?

• A. Total cost equals total revenue
• B. Total revenue minus variable costs equals zero
• C. Profit equals zero after tax
• D. Price equals cost of goods sold

Answer: (A)

Break-even means revenue exactly covers all costs, so profit is zero. This includes both fixed costs that don’t change with volume and variable costs that rise with each unit sold. When total revenue equals total costs, nothing is left over to contribute to profit, and nothing is owed as a loss.

Think of it this way: you must cover every dollar spent, both in fixed expenditures and in the costs that scale with sales. If revenue only covers variable costs, you’ve still got fixed costs that aren’t paid, so you’d be operating at a loss. If you aim for profit zero after taxes, taxes would affect the result, so break-even is typically considered before tax. If price merely covers the cost of goods sold, you’d have zero gross margin per unit, but fixed costs would still push you into a loss unless those fixed costs are zero.

So the defining condition is that total costs equal total revenue.