The breakeven point is the concept used in the case of accountancy, it refers to that point at which a company will neither make a profit nor it will incur losses. Given below are 15 questions on breakeven point which have been categorized into three categories that are true or false questions, multiple-choice questions, and short questions.
Breakeven Point True or False Questions
1. Question – According to the breakeven point the total fixed costs remain unchanged with the level of production?
Answer – True
2. Question – Fixed cost per unit remains unchanged with the level of production?
Answer – False, fixed cost per unit falls with an increase in the level of production.
3. Question – Breakeven point can be expressed only in terms of dollars?
Answer – False, it can be expressed both in terms of units as well as dollars.
4. Question – Variable costs per unit fall with an increase in the level of production?
Answer – False, variable cost per unit remain constant with an increase in the level of production, it is the fixed cost per unit which falls with an increase in the level of production.
5. Question – Breakeven point is the level where total revenues equal fixed costs?
Answer – False, at the breakeven point the company’s total revenue is equal to total cost which is fixed cost plus variable cost.
Breakeven Point Multiple Choice Questions
6. Question – Contribution per unit in case of a breakeven point is?
- Selling price per unit – variable cost per unit
- Fixed cost per unit + variable cost per unit
- Variable cost per unit – Selling price per unit
- Selling price per unit – fixed cost per unit
Answer – Option A is the correct answer.
7. Question – A socks manufacturing company’s fixed costs are $5000 and its variable cost to manufacture a pair of socks is $1 dollar per pair and selling price of socks is $3 then how many pair of socks the company needs to manufacture in order to achieve breakeven point?
- 2000 socks
- 2500 socks
- 3000 socks
- 1000 socks
Answer – Option B is the correct answer which is calculated as 5000/$3-$1
8. Question – Find out the fixed cost from the data, selling price per unit of the company is $5, the variable cost per unit of the company is $3, and break-even units are 20000?
- $2000
- $5000
- $10000
- $15000
Answer – Option C is the correct answer as the fixed cost can be calculated as the break-even point/contribution per unit.
9. Question – Which of the following statement is false
- At the breakeven point income of the company is zero.
- Breakeven point is the point at which fixed cost line and variable cost line intersect.
- Breakeven point can be found out if fixed cost, variable cost per unit, and sales per unit are given.
- Breakeven point can be in units or dollars.
Answer – Option B is the correct answer as at breakeven point sales revenue and total expenses line intersect and not the fixed cost line and variable cost line.
10. Question – If the variable cost per unit increases then the breakeven point will be?
- Same as before
- Increase
- Decrease
- None of the above
Answer – Option B is the correct answer as due to the increase in variable cost per unit company will need to produce more units in order to achieve the breakeven point.
Breakeven Point Short Questions
11. Question – State any three assumptions of the breakeven point?
Answer – Given below are the three assumptions of the breakeven point –
- All the costs incurred by the company can be segregated either as fixed costs or variable costs.
- Fixed costs remain the same at all output levels thus ignoring the fact that fixed costs change with an increase in output beyond the capacity level of the company.
- Other factors affecting the sales price and variable price per unit like technology, consumer taste, government policies, and so on are assumed to remain constant.
12. Question – What is the use of the breakeven point?
Answer – Breakeven point can be used by management to determine the number of things like the number of units which needs to be sold in order to be in a position of no loss no profit, determining the selling price which will not only cover the total cost but also profit, helping management in taking important decisions related to business like whether to start a new product line or continue with the current product line and so on.
13. Question – What is the Importance of the breakeven point?
Answer – In business capital is always limited and if a company is not able to protect its capital than chances are it will be out of business quickly and that is the reason why any company entering into a new business or having an established business should be aware that at what point it is feasible to do a business and that point is usually the breakeven point as any company will at least like to be in that position where if it is not earning profits than it should also not incur any losses.
14. Question – What are the components of the breakeven point?
Answer – Breakeven point has three components one is the fixed cost which refers to that cost which company has to pay even if it produces zero units, the second component is the variable cost per unit that is the cost which the company incurs on the production of 1 unit and last is the selling price per unit which is nothing but the price at which company sells its product to the customers. If we have all three components then one can easily calculate the breakeven point of the company at different levels of output as well as the selling price.
15. Question – What are the characteristics of the breakeven point?
Answer – Given below are some of the important characteristics of the breakeven point –
- It is a point of no profit no loss.
- Contirubtion which is calculated as selling price per unit less variable cost per unit will be equal to the total fixed cost incurred by the company.
- Fixed cost per unit declines with an increase in output and an increase with the decrease in output while the variable cost remains the same irrespective of output.
- Increase in fixed cost and variable cost per unit will lead to an increase in breakeven point while the increase in selling price will lead to a decrease in breakeven point.