Which term represents part of the calculation to work out the break-even point?

• A. Contribution
• B. Expenditure
• C. Gross Profit
• D. Net Profit

Answer: (A)

The term that represents part of the calculation to work out the break-even point is contribution. Contribution is defined as the selling price per unit minus the variable cost per unit. It is a crucial factor because it helps determine how much each unit sold contributes toward covering fixed costs.

To calculate the break-even point, businesses need to know the total fixed costs and the contribution margin. The break-even point is reached when total contribution equals total fixed costs, resulting in neither profit nor loss. Thus, understanding contribution allows businesses to see how many units they need to sell to cover their fixed costs.

While expenditure, gross profit, and net profit play significant roles in financial analysis, they do not directly relate to the break-even calculation in the same way that contribution does. Expenditure refers to the total costs incurred, gross profit is the revenue minus the cost of goods sold, and net profit is the total profit after all expenses have been deducted from revenue. These terms provide insights into overall financial health but are not used directly in the calculation of the break-even point.