Which statement about break-even quantity is correct?

Which statement about break-even quantity is correct?

• A. Quantity = Total fixed costs / (Selling price - Unit variable cost)
• B. Quantity = Total variable costs /Selling price
• C. Quantity = (Total fixed costs + Total variable costs) / Selling price
• D. Quantity = Total revenue / Contribution margin

Answer: (A)

Break-even quantity is the number of units you must sell to cover all costs, so profit is zero. At that point, the total contribution from sales equals fixed costs. Contribution per unit is the difference between what you sell a unit for and what it costs to make that unit (selling price minus variable cost per unit). Therefore, the break-even quantity is fixed costs divided by the contribution per unit. This is the exact way to express how many units are needed to absorb fixed costs through the per-unit margin. Other formulas don’t capture that balance correctly. Dividing fixed costs by selling price ignores variable costs, giving an overly optimistic unit count. Dividing total variable costs by price overlooks fixed costs entirely. And using total revenue divided by contribution margin mixes revenue and margins in a way that doesn’t yield the true break-even quantity.

Break-even quantity is the number of units you must sell to cover all costs, so profit is zero. At that point, the total contribution from sales equals fixed costs. Contribution per unit is the difference between what you sell a unit for and what it costs to make that unit (selling price minus variable cost per unit). Therefore, the break-even quantity is fixed costs divided by the contribution per unit. This is the exact way to express how many units are needed to absorb fixed costs through the per-unit margin.

Other formulas don’t capture that balance correctly. Dividing fixed costs by selling price ignores variable costs, giving an overly optimistic unit count. Dividing total variable costs by price overlooks fixed costs entirely. And using total revenue divided by contribution margin mixes revenue and margins in a way that doesn’t yield the true break-even quantity.