CPIM Practice Exam

What is the formula to determine the breakeven point in units?

1. Fixed Cost/(Price per unit + Variable Cost per unit)

2. Fixed Cost/(Price per unit - Variable Cost per unit)

3. Fixed Cost/(Variable Cost per unit - Price per unit)

4. Fixed Cost * (Price per unit + Variable Cost per unit)

The correct answer is: Fixed Cost/(Price per unit - Variable Cost per unit)

The formula to determine the breakeven point in units is derived from the understanding of fixed costs, variable costs, and selling price. The breakeven point is the point at which total revenue equals total costs, resulting in neither profit nor loss. To calculate the breakeven point in units, it's important to recognize the relationship between the selling price per unit, the variable cost per unit, and fixed costs. The correct formula is fixed costs divided by the contribution margin per unit. The contribution margin is defined as the selling price per unit minus the variable cost per unit. Thus, the formula becomes: Breakeven Point in Units = Fixed Costs / (Price per Unit - Variable Cost per Unit). This effectively means that you take the total fixed costs that need to be covered and divide that by how much profit (or contribution) is made on each unit sold after covering the variable costs associated with that unit. Using this understanding, the correct choice aligns with this reasoning and effectively captures the necessary components to find the breakeven point. The other options either misinterpret the relationship between these costs or incorrectly structure the formula needed to calculate breakeven, leading to discrepancies in the result.