How is the break-even point in units calculated?

The calculation of the break-even point in units is determined by dividing fixed costs by the contribution margin per unit. This method is based on the principle that the break-even point occurs when total revenue equals total costs, meaning that the business is not making a profit, but also not incurring a loss.

Fixed costs refer to expenses that do not change with the level of production or sales, such as rent and salaries. The contribution margin per unit is the selling price per unit minus the variable cost per unit, representing the amount each unit contributes toward covering fixed costs. By dividing fixed costs by the contribution margin, you determine how many units need to be sold to cover all fixed costs. Once this threshold is met, the business will start to generate profit on each subsequent sale.

The other options do not lead to an accurate calculation of the break-even point. For instance, dividing variable costs by total revenue does not provide insight into fixed costs or the profitability per unit sold. Total costs divided by selling price per unit does not differentiate between fixed and variable costs or indicate how many units must be sold to break even. Lastly, sales revenue divided by fixed costs lacks relevance to unit calculations, as it combines elements that don't relate to the break-even formula. Hence,