Explain break-even analysis and how to compute the break-even point in units.

• A. BEP in units equals fixed costs divided by (price per unit minus variable cost per unit).
• B. BEP in units equals fixed costs plus price per unit minus variable cost per unit.
• C. BEP in units equals fixed costs divided by (price per unit plus variable cost per unit).
• D. BEP in units equals price per unit times variable cost per unit minus fixed costs.

Answer: (A)

Break-even point in units is about how many units must be sold to cover all costs. The key idea is the contribution margin per unit, which is the amount each unit contributes to fixed costs after paying for its own variable costs. That margin is price per unit minus variable cost per unit. At the break-even point, total revenue equals total costs, so price times quantity equals fixed costs plus variable cost per unit times quantity. If you solve for quantity, you get quantity = fixed costs ÷ (price per unit − variable cost per unit). That gives the exact units needed to break even.

The other forms don’t fit this setup. Using fixed costs plus (price minus variable) is a monetary sum with incompatible units. Dividing fixed costs by (price plus variable) uses the wrong denominator, since you need the contribution margin, not the sum of price and variable cost. Finally, price times variable minus fixed costs mixes terms in a way that doesn’t reflect revenue covering costs, so it wouldn’t yield a valid break-even quantity.