Entrepreneurship and Small Business (ESB) Certification Practice Exam

What is the term for the amount of revenue required to cover all expenses?

1. Profit margin

2. Break-even point

3. Cost price

4. Net income

The correct answer is: Break-even point

The term that refers to the amount of revenue required to cover all expenses is known as the break-even point. This concept is crucial in the context of entrepreneurship and small business management, as it allows business owners to determine the minimum sales needed to avoid losing money. The break-even point is calculated by analyzing fixed and variable costs against sales revenue, illustrating the level of sales necessary for a business to neither make a profit nor incur a loss. Understanding the break-even point helps entrepreneurs make informed decisions regarding pricing, cost control, and overall strategic planning. It is a vital metric for assessing the viability of a business model, especially for startups or new product launches where managing cash flow and expenses is critical. Profit margin refers to the difference between sales revenue and the costs of goods sold, expressed as a percentage of sales, and does not directly indicate the revenue needed to cover expenses. Cost price relates to the total cost incurred to produce a product, which is not the same as the revenue needed to break even. Net income represents the profit after all expenses have been deducted, which implies that expenses have already been surpassed by revenue.