Final answer:
To calculate the breakeven number of units sold, use the formula Fixed expenses / contribution margin per unit. Contribution margin per unit is the amount each unit contributes towards covering fixed expenses and generating profit, whereas the contribution margin ratio measures the percentage of sales contributing to fixed costs.
Step-by-step explanation:
To find the number of units that need to be sold to breakeven, the correct formula is Option C: Fixed expenses / contribution margin per unit. This formula is derived by understanding that at the breakeven point, total sales revenue equals total costs, which include fixed and variable costs. Thus, the breakeven point in terms of units can be found by taking the total fixed costs, which do not change with the quantity of output, and dividing by the contribution margin per unit, which is the selling price per unit minus the variable cost per unit. The contribution margin per unit is the amount each unit contributes toward covering fixed expenses and generating profit. Using the contribution margin ratio instead of the contribution margin per unit (i.e., Options A and D) would lead to incorrect results, as the ratio reflects the percentage of each sales dollar that contributes to covering fixed costs rather than the contribution by each unit. Whereas Option B provides the correct orientation, it's the inverse of the formula needed to calculate units for breakeven. Firms also take into account their marginal costs, or the cost of producing one more unit, to ensure their pricing exceeds average variable costs and to determine whether the additional units add to profits.