Break-even units are calculated by dividing fixed costs by what value?

• A. Total revenue
• B. Selling price per unit minus variable cost per unit
• C. Fixed costs
• D. Variable cost per unit

Answer: (B)

Break-even in units is found by looking at how much each unit contributes toward fixed costs after its variable costs are covered. That per-unit contribution is the selling price minus the variable cost per unit. So the number of units needed to break even is fixed costs divided by that contribution per unit.

For example, if fixed costs are 2,000, the price is 10, and the variable cost per unit is 6, the contribution margin per unit is 4, and break-even units = 2,000 / 4 = 500.

Using total revenue per unit would ignore variable costs, dividing fixed costs by fixed costs leads to a nonsensical result, and dividing by variable cost per unit ignores the revenue side entirely.