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: Concept of Break-even point (BEP).
BEP is the point where total revenue equals total cost, i.e., no profit, no loss.
It indicates the minimum sales volume required to cover all costs.
Step 2: Formula derivation.
\[ \text{BEP (units)} = \frac{\text{Fixed Cost}}{\text{Selling Price per unit} - \text{Variable Cost per unit}} \] Here, the denominator is also called the Contribution per unit.
Step 3: Analysis of options.
- (1) Wrong, because numerator should be Fixed Cost, not Price.
- (2) Wrong, Marginal cost is not used here.
- (3) Correct, standard BEP formula.
- (4) Wrong, denominator should be SP - VC, not VC - SP.
Step 4: Conclusion.
Hence, the formula for BEP is Fixed cost ÷ (Price per unit – Variable cost per unit).