The break-even point in units depends on Fixed Costs and which per-unit measure?

The break-even point in units depends on Fixed Costs and which per-unit measure?

• A. Price
• B. Variable Cost
• C. Price − Variable Cost
• D. Contribution Margin

Answer: (C)

The key idea here is that the number of units you must sell to break even depends on fixed costs and how much each unit contributes toward covering those costs. That per-unit contribution is the selling price minus the variable cost per unit. So the break-even point in units is fixed costs divided by that per-unit contribution: Break-even units = Fixed Costs / (Price − Variable Cost). For example, if fixed costs are 10,000, the price is 25, and the variable cost per unit is 15, the contribution per unit is 10, and you’d need 1,000 units to break even. The other options don’t fit because price alone ignores variable costs, variable cost alone doesn’t show how much each unit adds to fixed costs, and while “contribution margin” can describe the same idea, the per-unit measure required here is price minus variable cost.

The key idea here is that the number of units you must sell to break even depends on fixed costs and how much each unit contributes toward covering those costs. That per-unit contribution is the selling price minus the variable cost per unit. So the break-even point in units is fixed costs divided by that per-unit contribution: Break-even units = Fixed Costs / (Price − Variable Cost). For example, if fixed costs are 10,000, the price is 25, and the variable cost per unit is 15, the contribution per unit is 10, and you’d need 1,000 units to break even. The other options don’t fit because price alone ignores variable costs, variable cost alone doesn’t show how much each unit adds to fixed costs, and while “contribution margin” can describe the same idea, the per-unit measure required here is price minus variable cost.