What equation represents the break-even quantity of output (Q)?

The break-even quantity of output is determined by the point at which total revenue equals total costs, resulting in neither profit nor loss. The formula that represents this relationship correctly calculates how many units need to be sold to cover both fixed and variable costs.

The correct representation of the break-even quantity involves considering the contribution margin, which is the difference between the selling price per unit and the variable cost per unit, denoted as (Price - Variable Costs). This margin represents the amount that contributes to covering fixed costs after variable costs have been accounted for on a per-unit basis.

In the correct formula, the numerator combines Operating Cash Flow (OCF) and Fixed Costs, providing a total amount that needs to be achieved in sales to cover all costs. By dividing this total by the contribution margin, you derive the break-even quantity:

[ Q = \frac{(OCF + Fixed Costs)}{(Price - Variable Costs)} ]

This equation effectively balances the revenue needed to offset both fixed and variable expenses, pinpointing the exact quantity at which a company will break even.

This concept is essential for businesses as it allows them to set sales targets, plan production levels, and understand the financial implications of their operational decisions. Understanding the interplay between fixed costs