ACCA Performance Management (F5) Certification Practice Exam

How do you calculate the breakeven point in units?

1. Fixed cost / Sales price

2. Fixed cost / Contribution per unit

3. Contribution per unit / Fixed cost

4. Variable cost / Contribution per unit

The correct answer is: Fixed cost / Contribution per unit

The breakeven point in units is calculated by dividing the total fixed costs by the contribution per unit. The contribution per unit represents the selling price of a product minus the variable costs associated with that product. This figure indicates how much each unit sold contributes to covering the fixed costs of a business. When fixed costs are divided by the contribution per unit, the result reveals how many units must be sold in order to cover all fixed expenses, resulting in a breakeven situation where total revenue equals total costs. Therefore, this metric is crucial for businesses to understand their sales targets necessary to avoid losses. The other options fail to provide the correct approach for calculating the breakeven point. For example, dividing fixed costs by the sales price does not account for variable costs, which are essential to determine the true contribution margin per unit. Additionally, expressing contribution per unit as a fraction of fixed costs is a reversal of the necessary formula, and variable costs divided by contribution per unit does not yield a relevant measure for breakeven analysis. The formula involving fixed costs and contribution per unit appropriately addresses the key factors needed for this calculation.