Final answer:
The formula to find a firm's break-even point in dollars is FC/CM per unit, which requires dividing the firm's fixed costs by the contribution margin per unit. This calculation helps a business determine the number of units it must sell to cover all its costs.
Step-by-step explanation:
The correct formula for finding a firm's break-even point in dollars is a. FC/CM per unit. This represents the ratio of fixed costs (FC) to the contribution margin per unit (CM per unit). The contribution margin is defined as the selling price per unit minus the variable cost per unit, which helps in determining the break-even point.
To understand this concept further, let's use an example: If a company incurs fixed costs of $1000, sells a product for $50, and has variable costs of $30 per unit, then the CM per unit would be $50 - $30 = $20. The break-even point in dollars would be $1000 / $20 = 50 units. This means the company must sell 50 units to cover all its fixed and variable costs.
Break-even analysis is crucial for businesses to understand at what point they start to make a profit, and it is commonly used in financial planning and decision-making.