Contribution Margin and Break-Even

Learn to differentiate between fixed and variable costs and how to calculate when a company will hit its break-even point.

Course Progress

Course Description

In the fourth lesson of our “Accounting 101” series, “Contribution Margin and Break-Even,” you will explore the distinctions between fixed and variable costs and how to leverage this information for effective financial analysis. You will learn how these costs behave differently with production volume and how to assess a company's operating leverage. By calculating the contribution margin—revenues minus variable costs—you will understand its relation to the gross profit margin. Additionally, you will learn how to determine when a company reaches its break-even point.

By the end of this course, you will able to answer questions such as:

• How can a company’s cost structure influence the risk in its operations?
• How does a company’s contribution margin affect its ability to scale?
• What shifts in cost structure can reduce the time for a company to break even?

Variable Costs

Fixed Costs

Calculating Operating Profit Using Variable and Fixed Costs

Operating Leverage: Effect on Sales Volume

Operating Leverage: Effect on Risk

Contribution Margin

Contribution Margin Ratio

Break-Even Point in Units

Course Review

Course Quiz

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