alleryStart learning →A firm below its break-even point is making a loss because contribution margin has not yet covered:
AVariable costs
BThe selling price
CThe sales volume
DThe fixed costs
Answer & Solution
Correct answer: D. The fixed costs
1. Break-even is defined by which costs have been recovered.
2. Contribution margin is selling price minus variable cost per unit.
3. Variable costs are already covered by the time contribution margin is computed.
4. The remaining contribution goes toward fixed costs.
5. Below break-even those fixed costs are not yet fully covered, so a loss remains.
_Source: OpenStax Principles of Accounting, Volume 2: Managerial Accounting (CC BY-NC-SA 4.0), Ch 3 'Cost-Volume-Profit Analysis'_
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