ACCA Performance Management (F5) Certification Practice Exam

What is the breakeven point?

1. The level of activity at which there is maximum profit

2. The level of activity at which there is neither profit nor loss

3. The total revenue generated at maximum production

4. The point at which fixed costs exceed variable costs

The correct answer is: The level of activity at which there is neither profit nor loss

The breakeven point represents the level of activity where total revenue equals total costs, leading to neither profit nor loss. At this point, a business covers all its fixed and variable expenses, but it does not generate any profit, highlighting the threshold of financial viability. Understanding this concept is crucial for management, as it helps in making decisions regarding pricing, budgeting, and financial forecasting. In contrast, the other options do not accurately define the breakeven point. The first option refers to maximum profit, which is beyond the breakeven point, as operations at that level would yield gains rather than a neutral financial outcome. The third option talks about total revenue at maximum production, which doesn’t take cost structures into account and thus does not specifically address when profits or losses occur. Lastly, the fourth option misrepresents the relationship between fixed and variable costs; the breakeven point is not defined by fixed costs exceeding variable costs but rather by the balance between total revenue and total costs.