Given fixed costs, variable cost per unit, and selling price per unit, which calculation gives break-even units?

Given fixed costs, variable cost per unit, and selling price per unit, which calculation gives break-even units?

• A. It is Break-even units = (Fixed costs + Variable costs) / Selling price per unit
• B. Break-even units = Fixed costs / Variable cost per unit
• C. Break-even units = Fixed costs / (Selling price per unit − Variable cost per unit)
• D. Break-even units = (Fixed costs × Selling price per unit) / Variable cost per unit

Answer: (C)

Think about how much each unit you sell adds toward covering the fixed costs after paying the variable cost. That per-unit amount is called the contribution margin: selling price minus variable cost per unit. Break-even happens when the total contribution equals the fixed costs, so the number of units needed is fixed costs divided by the contribution per unit. In formula form: break-even units = fixed costs / (selling price per unit − variable cost per unit). Example: fixed costs = 1000, selling price = 20, variable cost = 12. Contribution per unit = 8, so break-even units = 1000 / 8 = 125. At 125 units, revenue covers both variable costs and fixed costs exactly. Other options mix or omit the contribution concept, leading to incorrect results because they don’t reflect how much each unit actually contributes toward fixed costs after covering its own variable cost.

Think about how much each unit you sell adds toward covering the fixed costs after paying the variable cost. That per-unit amount is called the contribution margin: selling price minus variable cost per unit. Break-even happens when the total contribution equals the fixed costs, so the number of units needed is fixed costs divided by the contribution per unit. In formula form: break-even units = fixed costs / (selling price per unit − variable cost per unit).

Example: fixed costs = 1000, selling price = 20, variable cost = 12. Contribution per unit = 8, so break-even units = 1000 / 8 = 125. At 125 units, revenue covers both variable costs and fixed costs exactly.

Other options mix or omit the contribution concept, leading to incorrect results because they don’t reflect how much each unit actually contributes toward fixed costs after covering its own variable cost.