Discussion
Match the quantity with its formula.
1. Break-even quantity 2. Break-even sales value 3. Contribution margin ratio
P. Contribution divided by price Q. Fixed cost divided by contribution per unit R. Fixed cost divided by the contribution margin ratio
Answer: D
Correct answer: 1-Q, 2-R, 3-P
The three formulae are related but distinct. The break-even quantity is fixed cost over contribution per unit. The break-even sales value is fixed cost over the contribution margin ratio, which gives the same answer expressed in money. And the ratio itself is contribution over price. Confusing the two divisors is the commonest error, and the units are the check: a quantity comes from dividing by a rupees-per-unit figure, a value from dividing by a pure ratio.
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