Texas A&M University (TAMU) MATH140 Mathematics for Business and Social Sciences Final Practice Exam

To determine the break-even point in units, it is essential to understand the relationship between costs, revenue, and the selling price of a product. The break-even point is the point at which total revenues equal total costs, meaning there is no profit or loss.

The correct way to calculate the break-even point in units involves dividing the total fixed costs by the contribution margin per unit. The contribution margin per unit is obtained by subtracting the variable cost per unit from the selling price per unit. This calculation provides insight into how many units need to be sold to cover all fixed costs.

Using the formula provided in the correct option, Fixed Costs divided by the difference between Selling Price per Unit and Variable Cost per Unit, enables one to understand how many units must be sold to achieve a financial balance. When this formula is utilized, it accounts for both the fixed costs and the variable nature of production.

In contrast, the other formulas do not appropriately account for fixed and variable costs in relation to revenues. For instance, using total revenue or total costs without considering how much is left after covering variable costs would not yield the actual number of units needed for break-even.