What formula is used to calculate the cash break-even point?

The cash break-even point is the level of sales at which a company's cash inflows equal its cash outflows, effectively meaning the company is not making a profit but is covering all its cash expenses, including fixed and variable costs.

The formula for calculating the cash break-even point is derived as follows:

Fixed Costs are the costs that do not change with the level of production or sales, while Price represents the selling price per unit, and Variable Costs are the costs that vary directly with production volume. To find the break-even point in terms of units, the formula uses the contribution margin, which is the difference between the sales price per unit (P) and the variable cost per unit (v). The cash break-even point in units is thus calculated using FC/(P-v).

This formula helps identify how many units need to be sold to cover all fixed costs, ensuring that the company does not incur any cash losses. The correct answer emphasizes the fundamental relationship between pricing, variable costs, and fixed costs in determining the sales volume required to achieve cash neutrality. Other options deviate from this calculation by misrepresenting the interplay between fixed and variable costs or incorrectly interpreting how they influence the cash break-even point.