How do you calculate the break-even point?

The break-even point is calculated by determining the level of sales at which total revenues equal total costs, resulting in neither profit nor loss. To find this point, you need to consider both fixed and variable costs, as well as the selling price of the product.

The correct method to calculate the break-even point in units is by using the formula for break-even analysis, which is fixed costs divided by the contribution margin per unit. The contribution margin is derived by subtracting variable costs per unit from the selling price per unit. This is expressed formally as:

Break-even point (in units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

This formula is effective because it shows how many units must be sold to cover all fixed costs, taking into account how much profit each unit contributes after covering variable costs. Once fixed costs are fully covered, any additional sales begin to contribute directly to profit.

The other options do not represent the proper way to calculate the break-even point. For example, simply subtracting variable costs from fixed costs does not give a meaningful figure since it ignores the revenue generated per unit. Similarly, dividing fixed costs by just the selling price or a combination that does not account for variable costs will not accurately depict how many