Test Your Knowledge: Break-Even Point Calculation Quiz & Answers

📚 Quick Study Guide

• 💰 Definition: The break-even point is where total revenue equals total costs. At this point, there is no profit or loss.
• 🔢 Formula (Units): Break-Even Point (Units) = $\frac{Fixed Costs}{Selling Price per Unit - Variable Cost per Unit}$
• 📊 Formula (Sales Dollars): Break-Even Point (Sales Dollars) = $\frac{Fixed Costs}{Contribution Margin Ratio}$
• 📐 Contribution Margin: Selling Price per Unit - Variable Cost per Unit
• 🧾 Contribution Margin Ratio: $\frac{Contribution Margin}{Selling Price}$
• 💡 Fixed Costs: Costs that do not change with the level of production (e.g., rent, salaries).
• 💸 Variable Costs: Costs that vary directly with the level of production (e.g., raw materials, direct labor).

Practice Quiz

1. What is the break-even point?
   1. A. The point where a company starts making a profit.
   2. B. The point where total revenue equals total costs.
   3. C. The point where a company's expenses are zero.
   4. D. The point where a company has no sales.
2. Which of the following is the correct formula for calculating the break-even point in units?
   1. A. $\frac{Variable Costs}{Selling Price per Unit - Fixed Costs per Unit}$
   2. B. $\frac{Fixed Costs}{Selling Price per Unit + Variable Cost per Unit}$
   3. C. $\frac{Fixed Costs}{Selling Price per Unit - Variable Cost per Unit}$
   4. D. $\frac{Selling Price per Unit}{Fixed Costs - Variable Cost per Unit}$
3. What are fixed costs?
   1. A. Costs that change with the level of production.
   2. B. Costs that remain constant regardless of the level of production.
   3. C. Costs that are only incurred during peak seasons.
   4. D. Costs that are easily avoidable.
4. A company has fixed costs of $50,000. The selling price per unit is $25, and the variable cost per unit is $15. What is the break-even point in units?
   1. A. 2,000 units
   2. B. 5,000 units
   3. C. 10,000 units
   4. D. 1,000 units
5. What is the contribution margin?
   1. A. Total Revenue - Fixed Costs
   2. B. Selling Price per Unit - Variable Cost per Unit
   3. C. Net Income / Total Revenue
   4. D. Total Costs - Fixed Costs
6. A company sells a product for $50 per unit. The variable cost is $30 per unit. What is the contribution margin ratio if fixed costs are $100,000?
   1. A. 40%
   2. B. 60%
   3. C. 20%
   4. D. 80%
7. If a company increases its fixed costs, what happens to the break-even point?
   1. A. It decreases.
   2. B. It remains the same.
   3. C. It increases.
   4. D. It becomes zero.