Question

At the break-even point, the firm's:

Total contribution margin equals total costs

the margin of safety approaches infinity

total contribution margin equals total fixed cost.

Total contribution margin ratio exceeds 1

total contribution margin equals total variable cost

Answer 1

Solution:

Option (c) is the correct answer.

At the Break even point the firm's total contribution margin equals fixed cost.

Explanation:

Break even point is the point of sales where total sales is equal to total costs ( total costs includes both variable and fixed costs). So at break even point:

Sales = Variable costs + Fixed costs

Sales - Variable costs = Fixed costs

We know that contribution margin is equal to :

Sales - Variable costs

So we replace Sales - Variable costs with contribution margin in above formula.

Contribution margin = Fixed costs. ( hence proved)