Which formula represents break-even point in units?

Which formula represents break-even point in units?

• A. Total Costs / Average Price
• B. Net Income / Price
• C. Total Revenue / Price
• D. Fixed Costs / (Average Price − Variable Costs)

Answer: (D)

Break-even in units comes from covering fixed costs with the profit each unit contributes. The amount each unit contributes is the selling price minus the variable cost per unit. So you divide fixed costs by that per-unit contribution: Fixed costs / (Price per unit − Variable cost per unit). This tells you how many units must be sold to reach zero profit. Think of it this way: if every unit sold adds a chunk to pay down fixed costs, you need enough chunks to equal those fixed costs. If fixed costs are $10,000, price is $20, and variable cost is $12, the contribution per unit is $8, so break-even is 10,000 / 8 = 1,250 units. Other formulas miss the crucial idea of per-unit contribution or ignore fixed costs entirely. Dividing total costs by price doesn’t reflect how much each unit actually helps cover costs. Net income divided by price isn’t about units to reach zero profit, and total revenue divided by price assumes there are no costs to cover at all.

Break-even in units comes from covering fixed costs with the profit each unit contributes. The amount each unit contributes is the selling price minus the variable cost per unit. So you divide fixed costs by that per-unit contribution: Fixed costs / (Price per unit − Variable cost per unit). This tells you how many units must be sold to reach zero profit.

Think of it this way: if every unit sold adds a chunk to pay down fixed costs, you need enough chunks to equal those fixed costs. If fixed costs are $10,000, price is $20, and variable cost is $12, the contribution per unit is $8, so break-even is 10,000 / 8 = 1,250 units.

Other formulas miss the crucial idea of per-unit contribution or ignore fixed costs entirely. Dividing total costs by price doesn’t reflect how much each unit actually helps cover costs. Net income divided by price isn’t about units to reach zero profit, and total revenue divided by price assumes there are no costs to cover at all.