example

Assume that Masers A. Q Asem Private Ltd. has been able to sell only one unit of product during the period. If company does not sell any more units during the period, the company's contribution margin income statement will appear as follows:




Masers A. Q. Asem Private Ltd

Contribution margin Income Statement

For the month of-------------



Total Per Unit

Sales (1 Unit only) $250 $250

Less Variable expenses 150 150

--------- ---------

Contribution margin 100 100

Less fixed expenses 35,000 ======

---------

Net operating loss $(34,900)

======



For each additional unit that the company is able to sell during the period, $100 more in contribution margin will become available to help cover the fixed expenses. If a second unit is sold, for example, then the total contribution margin will increase by $100 (to a total of $200) and the company's loss will decrease by $100, to $34800. If enough units can be sold to generate $35,000 in contribution margin, then all of the fixed costs will be covered and the company will have managed to at least break even for the month-that is to show neither profit nor loss but just cover all of its costs. To reach the break even point, the company will have to sell 350 units in a period, since each unit sold contribute $100 in the contribution margin.