Break-even multiplier is defined as which of the following?

Break-even multiplier is defined as which of the following?

• A. Total overhead divided by Total direct salary.
• B. Total direct salary divided by Total overhead.
• C. (Total overhead) divided by (Total direct salary + Total profit).
• D. (Total overhead + Total direct salary) / Total direct salary.

Answer: (D)

The idea being tested is how to determine the break-even multiplier for labor costs. This multiplier tells you how much to bill per dollar of direct salary so that total costs, including overhead, are covered. To get it, you take the total overhead and add the total direct salary, then divide that sum by the total direct salary. This yields the factor by which direct labor must be billed to break even on costs. In other words, total costs (overhead plus direct salaries) are expressed as a multiple of direct salaries. The correct definition is (Total overhead + Total direct salary) / Total direct salary. The other formulations miss the balance of costs: one only accounts for overhead, another inverts the ratio, and another mixes in profit incorrectly, so they don’t reflect the true cost-to-direct-labor relationship.

The idea being tested is how to determine the break-even multiplier for labor costs. This multiplier tells you how much to bill per dollar of direct salary so that total costs, including overhead, are covered.

To get it, you take the total overhead and add the total direct salary, then divide that sum by the total direct salary. This yields the factor by which direct labor must be billed to break even on costs. In other words, total costs (overhead plus direct salaries) are expressed as a multiple of direct salaries.

The correct definition is (Total overhead + Total direct salary) / Total direct salary. The other formulations miss the balance of costs: one only accounts for overhead, another inverts the ratio, and another mixes in profit incorrectly, so they don’t reflect the true cost-to-direct-labor relationship.