Find the break-even point: units and revenue needed to cover fixed and variable costs, plus the contribution margin and margin of safety.
Each unit sold contributes its price minus its variable cost — the contribution margin — toward covering fixed costs. Break-even units are the fixed costs divided by that margin, rounded up because a part unit cannot be sold. Break-even revenue multiplies those units by the price. When expected sales are entered, the margin of safety shows how far sales can fall before losses begin, and the expected profit follows from units above break-even times the margin.
What is contribution margin? Price minus variable cost per unit: the amount each sale contributes to fixed costs and then to profit. The ratio expresses the same figure as a percentage of the price.
Why can break-even be impossible? If the price is no higher than the variable cost per unit, each sale contributes nothing or loses money, so no number of sales can cover fixed costs. The price or the variable cost has to change.
What does margin of safety mean? The gap between expected sales and break-even sales, as units and as a percentage. A larger margin of safety means sales can drop further before a loss appears.