What analysis determines the number of units that must be sold to cover fixed and variable production costs?

The analysis that determines the number of units that must be sold to cover fixed and variable production costs is known as break-even analysis. This approach calculates the break-even point, which is the level of sales at which total revenues equal total costs, meaning there is no profit or loss.

In performing break-even analysis, businesses examine their fixed costs (costs that do not change with the level of production, such as rent or salaries) and variable costs (costs that vary directly with the production volume, such as materials and labor). By determining the contribution margin per unit—selling price minus variable cost per unit—managers can find out how many units must be sold to cover the fixed costs, thereby identifying the break-even point.

Cost-volume-profit analysis encompasses a broader range of factors, including the relationships between cost, volume, and profit for various levels of output, but specifically targets the break-even point. Return on investment analysis is related to assessing the profitability of investments rather than focusing on production costs and sales volume, and financial forecasting is more about predicting future financial outcomes rather than determining current operational thresholds. Thus, break-even analysis is specifically designed for understanding and calculating the exact point at which a business will start to generate profit by covering all associated costs