Break-even in sales dollars is Fixed Costs divided by which metric?

Break-even in sales dollars is Fixed Costs divided by which metric?

• A. Contribution Margin
• B. Price
• C. Fixed Costs / Contribution Margin Ratio
• D. Variable Cost

Answer: (C)

To break-even in sales dollars you need to relate fixed costs to how much of each dollar of sales actually goes toward covering those fixed costs. That measure is the contribution margin ratio, which is the portion of each sales dollar left after variable costs. Break-even in dollars is fixed costs divided by the contribution margin ratio. In other words, you take the fixed costs and see how many dollars of sales are needed when each dollar contributes a fixed percentage to fixed costs. If the contribution margin per unit is known, you can also think in unit terms, but for dollars the ratio is the key. For context, the contribution margin ratio equals (price − variable cost) divided by price. The other options don’t convert fixed costs into a dollar amount of sales because they’re either the per-unit margin (which doesn’t directly translate to dollars of sales), the price itself, or the variable cost; none of these alone tells you how much total sales are required to cover fixed costs.

To break-even in sales dollars you need to relate fixed costs to how much of each dollar of sales actually goes toward covering those fixed costs. That measure is the contribution margin ratio, which is the portion of each sales dollar left after variable costs.

Break-even in dollars is fixed costs divided by the contribution margin ratio. In other words, you take the fixed costs and see how many dollars of sales are needed when each dollar contributes a fixed percentage to fixed costs. If the contribution margin per unit is known, you can also think in unit terms, but for dollars the ratio is the key.

For context, the contribution margin ratio equals (price − variable cost) divided by price. The other options don’t convert fixed costs into a dollar amount of sales because they’re either the per-unit margin (which doesn’t directly translate to dollars of sales), the price itself, or the variable cost; none of these alone tells you how much total sales are required to cover fixed costs.