Which statement about breakeven analysis is correct?

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Multiple Choice

Which statement about breakeven analysis is correct?

Explanation:
Break-even analysis looks for the point where revenue exactly covers all costs, so profit is zero. At that point, units sold times the price equal fixed costs plus variable costs: u × P = F + u × V. Rearranging gives u × (P − V) = F, so break-even units = fixed costs divided by the contribution margin per unit (P − V). The contribution margin tells you how much each unit contributes toward covering fixed costs. This is why the correct statement is that break-even occurs at the number of units where revenue just covers total costs, with break-even units computed as fixed costs over the unit contribution margin. It’s not about profit in the first year, nor about achieving a target profit, and it’s not about the payback period, which is a cash‑recovery metric.

Break-even analysis looks for the point where revenue exactly covers all costs, so profit is zero. At that point, units sold times the price equal fixed costs plus variable costs: u × P = F + u × V. Rearranging gives u × (P − V) = F, so break-even units = fixed costs divided by the contribution margin per unit (P − V). The contribution margin tells you how much each unit contributes toward covering fixed costs.

This is why the correct statement is that break-even occurs at the number of units where revenue just covers total costs, with break-even units computed as fixed costs over the unit contribution margin. It’s not about profit in the first year, nor about achieving a target profit, and it’s not about the payback period, which is a cash‑recovery metric.

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