Question

Break-even point can be estimated by using the formula-

• A. BEP = Price per unit / (Fixed cost per unit - Variable cost per unit)
• B. BEP = Marginal cost per unit / (Price per unit - Variable cost per unit)
• C. BEP = Fixed cost per unit / (Price per unit - Variable cost per unit)
• D. BEP = Fixed cost per unit / (Variable cost per unit - Price per unit)

Hint:

BEP formula: Fixed Cost ÷ Contribution per unit (SP – VC).

Answer 1

The Correct Option is C

Step 1: Understanding the Break-even Point (BEP).
The BEP is the threshold where total revenue matches total cost, resulting in neither profit nor loss.
It signifies the minimum sales volume necessary to cover all expenses.
Step 2: Formula Development.
\[ \text{BEP (units)} = \frac{\text{Fixed Cost}}{\text{Selling Price per unit} - \text{Variable Cost per unit}} \] The denominator is also referred to as the Contribution Margin per unit.
Step 3: Evaluating Alternatives.
- (1) Incorrect: The numerator should be Fixed Cost, not Price.
- (2) Incorrect: Marginal cost is not applicable in this calculation.
- (3) Correct: This represents the standard BEP formula.
- (4) Incorrect: The denominator should be Selling Price minus Variable Cost (SP - VC), not Variable Cost minus Selling Price (VC - SP).
Step 4: Final Determination.
Consequently, the formula for BEP is Fixed Cost divided by (Price per unit minus Variable Cost per unit).