Performance Management · Cost-volume-profit analysis (CVP)

Break-even Analysis and Contribution for ACCA PM

Updated 11 October 2026 · Fact-checked

Contribution is selling price per unit minus variable cost per unit. Break-even point in units is total fixed costs divided by contribution per unit. In sales revenue, divide fixed costs by the contribution to sales (C/S) ratio. At break-even, total contribution equals fixed costs and profit is zero.

Understand Break-even Analysis and Contribution

Costs behave differently as activity changes. Variable costs rise in line with output. Fixed costs stay the same in total over the relevant range. CVP analysis uses this split to show how profit reacts to changes in volume.

Contribution is what each unit of sales leaves after paying its own variable cost. Contribution per unit = selling price per unit − variable cost per unit. Each unit's contribution first goes towards covering fixed costs. Once fixed costs are covered, further contribution is profit.

The break-even point is the activity level where total contribution exactly equals total fixed costs. Profit is zero. Below it you make a loss. Above it you make a profit.

The contribution to sales (C/S) ratio is contribution divided by sales revenue. PM also calls it the profit-volume (P/V) ratio. In this context the contribution margin ratio and the P/V ratio are the same thing. It shows how many cents of contribution each $1 of sales earns. It lets you work in revenue terms when units are not given.

Two approaches give the same answer. The contribution approach divides fixed costs by contribution per unit. The equation approach writes sales − variable costs − fixed costs = profit, sets profit to zero and solves for units. Use whichever you find quicker.

Key rules to remember

Contribution per unit: Contribution per unit = Selling price per unit − Variable cost per unit; Variable cost must include all variable costs, such as variable selling costs and variable overheads.
C/S (P/V) ratio: C/S ratio = Contribution ÷ Sales revenue = Contribution per unit ÷ Selling price per unit; Same as the contribution margin ratio and profit-volume ratio. Usually shown as a percentage.
Break-even point in units: Break-even units = Total fixed costs ÷ Contribution per unit; Round up to the next whole unit if the answer is not whole, as you cannot sell part of a unit and still break even.
Break-even point in sales revenue: Break-even revenue = Total fixed costs ÷ C/S ratio = Break-even units × Selling price; Both routes give the same answer.
Equation approach: Sales − Variable costs − Fixed costs = Profit; set Profit = 0 and solve for units; Useful when the question gives costs in a mixed form.
Units for a target profit: Required units = (Fixed costs + Target profit) ÷ Contribution per unit; Same logic as break-even, with target profit added to the fixed costs.

How to solve Break-even Analysis and Contribution questions

Use this method for any break-even question. It keeps the numbers organised and stops you using the wrong costs.

1List the selling price per unit and every cost given. Mark each cost as variable or fixed.
2Add up all variable costs per unit. Include variable selling and distribution costs.
3Calculate contribution per unit = selling price − total variable cost per unit.
4Calculate total fixed costs for the period. Do not divide fixed costs by units.
5Divide fixed costs by contribution per unit to get break-even units.
6If revenue is asked, multiply units by selling price, or divide fixed costs by the C/S ratio.
7Check: break-even units × contribution per unit should equal fixed costs.
8State the answer with units or currency and the period, and round up if needed.

Quickest way: Contribution and C/S ratio shortcut

When to use it: Use it for objective test questions and for the first lines of a Section C answer, where time is short.

Write price and variable cost per unit, subtract, and get contribution.
Write fixed costs on the line below.
Divide to get break-even units. Work in whole numbers where possible.
If asked for revenue, multiply by the price. If only percentages are given, divide fixed costs by the C/S ratio.
Do a one-line check: units × contribution = fixed costs.

Common mistakes in Break-even Analysis and Contribution

Leaving out variable selling or packaging costs when calculating contribution.
Students treat only production costs as variable.
Fix: Read every cost line. Any cost that moves with units sold is variable, wherever it appears.
Including depreciation or allocated overheads in variable cost.
Full absorption costing habits carry over.
Fix: Fixed overhead is never in contribution. Take fixed costs as a total and use them only as the numerator.
Using the profit per unit instead of contribution per unit.
Profit per unit looks familiar from absorption costing.
Fix: Always use selling price minus variable cost per unit. Profit per unit changes with volume, contribution per unit does not.
Dividing fixed costs by the C/S ratio and calling the answer units.
Students forget that a ratio gives revenue, not units.
Fix: Fixed costs ÷ contribution per unit gives units. Fixed costs ÷ C/S ratio gives revenue.
Not rounding break-even units up.
Students round to the nearest whole number.
Fix: Round up. If the answer is 1,666.7 units, 1,667 units are needed to cover fixed costs.
Mixing units of time, such as monthly fixed costs with annual sales.
Data is given for different periods and students do not convert.
Fix: Put fixed costs, volume and revenue on the same period before dividing.

Worked examples

Example 1

A company sells one product at $50 per unit. Variable production cost is $22 per unit and variable selling cost is $3 per unit. Fixed costs are $150,000 per year. Calculate (a) contribution per unit, (b) the C/S ratio, (c) break-even units and (d) break-even revenue.

Show the solution

Variable cost per unit = 22 + 3 = $25.
(a) Contribution per unit = 50 − 25 = $25.
(b) C/S ratio = 25 ÷ 50 = 50%.
(c) Break-even units = 150,000 ÷ 25 = 6,000 units.
(d) Break-even revenue = 6,000 × 50 = $300,000. Check: 150,000 ÷ 0.50 = $300,000.

Answer: Contribution is $25 per unit, the C/S ratio is 50%, break-even is 6,000 units and break-even revenue is $300,000.

Example 2

A firm sells a product for $80. Variable costs are 60% of selling price. Fixed costs are $96,000 per year. Using the equation approach, find the break-even units and the sales needed to earn a profit of $24,000.

Show the solution

Variable cost per unit = 60% × 80 = $48.
Contribution per unit = 80 − 48 = $32. C/S ratio = 40%.
Equation for break-even, with x as units: 80x − 48x − 96,000 = 0, so 32x = 96,000.
x = 3,000 units. Break-even revenue = 3,000 × 80 = $240,000.
For profit of $24,000: 32x = 96,000 + 24,000 = 120,000, so x = 3,750 units.
Sales revenue needed = 3,750 × 80 = $300,000. Check: 120,000 ÷ 0.40 = $300,000.

Answer: Break-even is 3,000 units ($240,000 revenue). To earn $24,000 profit the firm needs 3,750 units, which is $300,000 of sales.

Exam tips

In Section A and OT cases, break-even questions are all or nothing, so check that your units match what is asked: units or revenue.
Read cost lists slowly and mark each as variable or fixed before any arithmetic.
In Section C, show contribution per unit and the formula on separate lines, so you can earn method marks even if a figure is wrong.
Do the check line (units × contribution = fixed costs). It takes seconds and catches most errors.
Expect break-even to be a stepping stone: later parts often ask for margin of safety, target profit or the effect of a price or cost change.

Practice questions from Cost-volume-profit analysis (CVP)

Break-even Analysis and Contribution in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Break-even Analysis and Contribution: frequently asked questions

What is the break-even point formula in ACCA PM?

Break-even units = fixed costs ÷ contribution per unit. Break-even revenue = fixed costs ÷ C/S ratio. Both give the same answer when converted.

Is the contribution margin ratio the same as the profit volume ratio?

In ACCA PM, yes. Both are contribution divided by sales, and PM usually calls it the C/S or P/V ratio. It shows contribution earned per $1 of sales.

Should I round break-even units up or down?

Round up. At the rounded-down figure, contribution is still below fixed costs, so you have not broken even yet.

Which approach is better, contribution or equation?

Both give the same result. The contribution approach is faster for simple data. The equation approach is helpful when the question gives costs in an unusual form, such as variable costs as a percentage of sales.