Finding the Break-Even Point
Another way that you benefit from studying a product's contribution margin is the ability to perform a cost/volume/profit analysis. Creating this analysis is often little more than the manipulation of the information derived from your contribution analysis. By doing so, you can determine the combination of production volume and sales price that will enable you to maximize your gross profits and minimize your production costs.
One way to turn your contribution margin analysis into a cost/volume/profit analysis is to calculate the break-even point. This is the point where total revenues equal the total of fixed and variable costs.
Total Revenues = Total Costs (Unit Price * Quantity) = (Fixed Costs + (Variable Costs ...
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