Which analysis determines the number of units that must be sold to cover total costs?

Which analysis determines the number of units that must be sold to cover total costs?

• A. Cash Flow
• B. Break-Even Analysis
• C. Net Worth
• D. Enterprise

Answer: (B)

Break-even analysis focuses on the point where revenue from selling units exactly covers all costs—both fixed and variable. Fixed costs stay the same regardless of how many units are produced, while variable costs rise with each unit. The contribution per unit equals the selling price minus the variable cost per unit; dividing fixed costs by this contribution gives the number of units needed to break even. For example, with fixed costs of 50,000, a selling price of 25 per unit, and a variable cost of 15 per unit, the contribution is 10, and 50,000 / 10 = 5,000 units to break even. Cash flow looks at timing of cash receipts and payments, net worth is assets minus liabilities, and enterprise refers to the business venture as a whole. This question is asking for the sales quantity needed to cover total costs, which is precisely break-even analysis.

Break-even analysis focuses on the point where revenue from selling units exactly covers all costs—both fixed and variable. Fixed costs stay the same regardless of how many units are produced, while variable costs rise with each unit. The contribution per unit equals the selling price minus the variable cost per unit; dividing fixed costs by this contribution gives the number of units needed to break even. For example, with fixed costs of 50,000, a selling price of 25 per unit, and a variable cost of 15 per unit, the contribution is 10, and 50,000 / 10 = 5,000 units to break even. Cash flow looks at timing of cash receipts and payments, net worth is assets minus liabilities, and enterprise refers to the business venture as a whole. This question is asking for the sales quantity needed to cover total costs, which is precisely break-even analysis.