Break-Even Point Analysis

Read this text on break-even point analysis. It goes through the process of calculating the break-even point for cost analysis under different scenarios. Take notes on each of the following: define the break-even point, differentiate between fixed and variable costs, and write the formulas on how to calculate the break-even point, calculate the contribution margin, calculate the contribution margin ratio, and calculate the margin of safety.

Contribution Margin

Answers

1. C. The contribution margin or the amount of revenue available to offset fixed costs is the difference between your total variable costs per unit and your per unit sales price.

2. B. contribution margin ratio is the contribution margin per unit divided by the sales price per unit or 0.857, rounded to 0.86.