Formula for Breakeven?

Formula for Breakeven?

• A. Fixed Costs ÷ (Selling Price - Variable Costs)
• B. Total Costs ÷ Selling Price
• C. Variable Costs ÷ Fixed Costs
• D. Selling Price - Variable Costs

Answer: (A)

Break-even happens when total revenue just covers total costs, so each unit sold must contribute enough to cover fixed costs after covering variable costs. The amount each unit contributes is the selling price minus the variable cost per unit. To find how many units you need to sell to cover fixed costs, you divide the fixed costs by that per-unit contribution. That is why the formula is fixed costs ÷ (selling price − variable costs). For example, if fixed costs are 1,000, the selling price is 50 and the variable cost per unit is 30, the contribution per unit is 20, so break-even units = 1,000 ÷ 20 = 50. At 50 units, revenue (50×50) equals total costs (50×30 plus 1,000). The other options don’t give the break-even quantity: total costs ÷ selling price ignores fixed/variable separation; variable costs ÷ fixed costs has no units interpretation for break-even; selling price − variable costs is just the contribution per unit, not the quantity needed.

Break-even happens when total revenue just covers total costs, so each unit sold must contribute enough to cover fixed costs after covering variable costs. The amount each unit contributes is the selling price minus the variable cost per unit. To find how many units you need to sell to cover fixed costs, you divide the fixed costs by that per-unit contribution. That is why the formula is fixed costs ÷ (selling price − variable costs).

For example, if fixed costs are 1,000, the selling price is 50 and the variable cost per unit is 30, the contribution per unit is 20, so break-even units = 1,000 ÷ 20 = 50. At 50 units, revenue (50×50) equals total costs (50×30 plus 1,000).

The other options don’t give the break-even quantity: total costs ÷ selling price ignores fixed/variable separation; variable costs ÷ fixed costs has no units interpretation for break-even; selling price − variable costs is just the contribution per unit, not the quantity needed.