What formula is used to calculate the break-even point?

The formula to calculate the break-even point is derived from understanding how fixed costs, selling price, and variable costs interact in a business context. The break-even point is the point at which total revenues equal total costs, meaning the business is not making a profit or a loss.

To achieve this, one must determine how many units need to be sold to cover all fixed costs. Fixed costs remain constant regardless of the level of goods or services produced, while variable costs change with production volume.

The correct formula is Fixed Costs divided by (Sales price minus Variable costs). Here, Sales price minus Variable costs gives the contribution margin per unit, which is the amount that contributes to covering fixed costs and generating profit once the break-even threshold is surpassed. By dividing fixed costs by this contribution margin, one can ascertain the number of units needed to be sold to reach the break-even point.

The other options present combinations of these costs that do not effectively calculate the break-even point, either by misrepresenting the relationships between costs and revenues or providing incorrect mathematical operations.