The correct answer is: A. $\frac{{{\text{TFC}}}}{{{\text{SP}} – {\text{MC}}}}$
Break-even point is the point at which the total revenue of a business equals its total costs. It is the point at which the business neither makes a profit nor incurs a loss.
The break-even point in units is given by the following formula:
$$\text{Break-even point in units} = \frac{{{\text{TFC}}}}{{{\text{SP}} – {\text{MC}}}}$$
where:
- TFC = Total fixed costs
- SP = Selling price per unit
- MC = Marginal cost per unit
The break-even point in units is the number of units that must be sold in order to cover the total fixed costs. Once the break-even point is reached, the business will start to make a profit.
Option B is incorrect because it is the formula for the contribution margin ratio. The contribution margin ratio is a measure of a company’s ability to generate profit from its sales. It is calculated by dividing the contribution margin by the sales revenue.
Option C is incorrect because it is the formula for the break-even point in dollars. The break-even point in dollars is the amount of revenue that must be generated in order to cover the total fixed costs. It is calculated by multiplying the break-even point in units by the selling price per unit.
Option D is incorrect because it is not a valid formula.