What is the formula for break-even analysis?

The formula for break-even analysis helps businesses determine the point at which their total revenues equal total costs, allowing them to cover all expenses without making a profit or a loss. The correct formula, Total Fixed Cost divided by (Price - Average Variable Costs), is crucial because it directly calculates the break-even point in terms of units sold.

At the break-even point, the contribution margin (which is the difference between the selling price per unit and the variable cost per unit) is used to cover the fixed costs. Therefore, by dividing the total fixed costs by the contribution margin, the formula provides the exact number of units needed to be sold to achieve a break-even situation.

This understanding is essential for businesses as it helps in pricing strategies, financial forecasting, and overall operational planning. It ensures that all fixed expenses are accounted for and provides valuable insight into how many units need to be sold to avoid losses.

Other options do not accurately reflect the principles of break-even analysis. They might describe aspects of revenue or cost structures, but they do not provide a direct formula for determining the break-even point as required in this context.