Break-Even Analysis Using Contribution Margin

Steps:

• Variable cost ratio = $300,000 /$600,000 = 50%.
• Contribution margin ratio = 100% - 50% = 50%.
• Fixed costs = 50% × $400,000 (break-even sales) =$200,000.
• Profit = (50% × $600,000) -$200,000 = $300,000 -$200,000 = $100,000.

Why A is correct:

• Profit equals total contribution margin minus fixed costs, with fixed costs derived from break-even sales covering only contribution margin at zero profit.

Why the others are wrong:

• B confuses profit with fixed costs alone ($200,000).
• C equals total contribution margin, ignoring fixed costs deduction.
• D exceeds actual revenue minus all costs by double-counting margins.

Final answer: A