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    Question

    Break Even Point (BEP) is the level of EBIT at

    which
    A EBIT is equal to fixed costs Correct Answer Incorrect Answer
    B EBIT is equal to fixed costs and fixed financial cost Correct Answer Incorrect Answer
    C EBIT is equal to fixed financial cost, which include interest only Correct Answer Incorrect Answer
    D EBIT is equal to fixed financial cost, which include interest and preference dividend Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    When the Fixed Financial Expense = EBIT, resulting into zero Earnings available for equity shareholders, that level of EBIT is known as Financial Break Even Point. For Example,   Sales                                                 Rs.5000   Variable Costs                                  Rs.3500   Fixed Cost                                        Rs.1000   EBIT                                                  Rs.500   Interest cost                                      Rs.500    Profit                                                 Rs.0 (Break Even Point)

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