Which calculation correctly represents break-even units?

• A. Break-even units = (price - variable costs) / fixed costs
• B. Break-even units = fixed costs / (price - variable costs)
• C. Break-even units = fixed costs / price
• D. Break-even units = price / (fixed costs + variable costs)

Answer: (B)

Understanding break-even units means figuring out how many units you must sell to cover all costs. At the break-even point, revenue exactly equals total costs. If each unit sells for a price and has a variable cost per unit, total revenue is price × quantity, and total costs are fixed costs plus variable costs per unit × quantity. Setting them equal gives price × quantity = fixed costs + (variable cost per unit × quantity). Rearranging to solve for quantity yields quantity = fixed costs ÷ (price − variable cost per unit). This is the correct form because it uses the fixed costs you must cover and the contribution margin per unit (price minus variable cost) to determine how many units are needed.

The other forms don’t capture the right relationship. Using (price − variable costs) in the numerator with fixed costs in the denominator flips the relationship and doesn’t produce a meaningful unit count. Dividing fixed costs by price ignores the variable costs, assuming there are none, which isn’t realistic. Dividing price by the sum of fixed and variable costs mixes the concepts and doesn’t reflect how many units must be sold to cover total costs.