Business owners, entrepreneurs operate to earn profits. However, there is no profit until they recover their fixed costs. The variable costs claim the first portion of the selling price of every unit sold. As a result, the residual amount of sales over variable costs or the contribution margin is the dollar contribution to the recovery of fixed costs and profits, in that order. The owner profits only when the volume is enough to boost the contribution beyond the level of the fixed costs.The volume at which enough units have been sold to accumulate a contribution margin equal to the fixed costs, is the break-even profit, the point of zero profit. If you know the unit selling price, unit variable cost, unit contribution margin, and total fixed costs, you can establish the break-even volume and determine the profits for the different levels of forecast volume.

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