Break-even point in sales value is calculated as

Break-even point in sales value is calculated as

• A. PV ratio × total revenue
• B. Total fixed costs divided by the P/V ratio
• C. Selling price per unit × break-even quantity
• D. Total revenue minus total costs

Answer: (B)

In break-even analysis, the sales value needed to cover all fixed costs comes from the contribution margin ratio, also called the P/V ratio. The P/V ratio shows how much contribution (sales minus variable costs) you generate for each dollar of sales. At the break-even point, total contribution equals fixed costs, so the required sales value is fixed costs divided by the P/V ratio. So the correct approach is break-even in value = fixed costs / P/V ratio. For example, if fixed costs are 100,000 and the P/V ratio is 0.25, the break-even sales value is 100,000 ÷ 0.25 = 400,000. This means 400,000 in sales generates enough contribution to cover fixed costs, with profit zero. Why the other options don’t fit: PV ratio × total revenue gives total contribution, not the break-even sales value. Selling price per unit × break-even quantity would yield revenue at break-even, but you’d need the break-even quantity itself, so it’s not the direct formula. Total revenue minus total costs equals profit, which is zero at break-even but isn’t the calculation used to find the break-even sales value.

In break-even analysis, the sales value needed to cover all fixed costs comes from the contribution margin ratio, also called the P/V ratio. The P/V ratio shows how much contribution (sales minus variable costs) you generate for each dollar of sales. At the break-even point, total contribution equals fixed costs, so the required sales value is fixed costs divided by the P/V ratio.

So the correct approach is break-even in value = fixed costs / P/V ratio. For example, if fixed costs are 100,000 and the P/V ratio is 0.25, the break-even sales value is 100,000 ÷ 0.25 = 400,000. This means 400,000 in sales generates enough contribution to cover fixed costs, with profit zero.

Why the other options don’t fit: PV ratio × total revenue gives total contribution, not the break-even sales value. Selling price per unit × break-even quantity would yield revenue at break-even, but you’d need the break-even quantity itself, so it’s not the direct formula. Total revenue minus total costs equals profit, which is zero at break-even but isn’t the calculation used to find the break-even sales value.