What is the break-even point formula used in menu item development?

• A. Break-even point = fixed costs ÷ (contribution margin per unit)
• B. Break-even point = (selling price × units) - (variable cost × units)
• C. Break-even point = fixed costs × (contribution margin per unit)
• D. Break-even point = selling price ÷ variable cost

Answer: (A)

The main concept here is how to determine how many units of a menu item must be sold to cover fixed costs, using the amount each unit contributes after variable costs are paid. This per-unit contribution margin is calculated as the selling price minus the variable cost per unit. The break-even quantity is found by dividing the fixed costs by this contribution margin per unit. In other words, how many items you need to sell so that the money coming in from each item after variable costs equals the fixed costs, resulting in zero profit.

For example, if fixed costs total $10,000, the item sells for $8, and the variable cost per unit is $4, the contribution margin per unit is $4. Break-even units = $10,000 ÷ $4 = 2,500 units. Selling 2,500 units would cover all fixed costs, with no profit or loss; selling more than that would begin to generate profit.

The other formulas don’t directly yield the required quantity. One expresses profit or contribution in dollars for a given number of units rather than the quantity needed to break even; another multiplies fixed costs by the contribution margin, which isn’t meaningful for determining units; and the last ignores fixed costs entirely, which is essential to finding the break-even point.