A company has $5M in fixed costs and a 40% contribution margin. What's the break-even revenue?

How to answer

Break-Even Revenue = Fixed Costs / Contribution Margin %. BE = $5M / 0.40 = $12.5M. This means the company needs $12.5M in revenue to cover all fixed costs. At $12.5M revenue, variable costs are $7.5M (60%), leaving $5M in contribution margin that exactly covers fixed costs. Every dollar above $12.5M generates $0.40 in profit. For unit-level: if average selling price is $100 and variable cost per unit is $60, contribution margin per unit is $40. Break-even units = $5M / $40 = 125,000 units. This framework is essential for evaluating new product launches, pricing changes, and cost reduction initiatives.

Key idea: BE Revenue = Fixed Costs / CM%; BE Units = Fixed Costs / CM per unit